[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
WHAT COMES NEXT? PPP FORGIVENESS
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 1, 2021
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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-030
Available via the GPO Website: www.govinfo.gov
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U.S. GOVERNMENT PUBLISHING OFFICE
45-478 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Blaine Luetkemeyer.......................................... 2
WITNESSES
Ms. Tracy C. Ward, Director of the SBA 504 Loan Program, Self-
Help Ventures Fund, Durham, NC................................. 5
Ms. Leslie Payne, Assistant Vice President of Commercial Lending,
Affinity Federal Credit Union, Basking Ridge, NJ, testifying on
behalf of the National Association of Federally Insured Credit
Unions......................................................... 7
Ms. Marla Bilonick, President and Chief Executive Officer,
National Association for Latino Community Asset Builders,
Washington, DC................................................. 9
Mr. Robert Fisher, President and Chief Executive Officer, Tioga
State Bank, Chairman, Independent Community Bankers of America
(ICBA), Spencer, NY............................................ 10
APPENDIX
Prepared Statements:
Ms. Tracy C. Ward, Director of the SBA 504 Loan Program,
Self-Help Ventures Fund, Durham, NC........................ 43
Ms. Leslie Payne, Assistant Vice President of Commercial
Lending, Affinity Federal Credit Union, Basking Ridge, NJ,
testifying on behalf of the National Association of
Federally Insured Credit Unions............................ 61
Ms. Marla Bilonick, President and Chief Executive Officer,
National Association for Latino Community Asset Builders,
Washington, DC............................................. 73
Mr. Robert Fisher, President and Chief Executive Officer,
Tioga State Bank, Chairman, Independent Community Bankers
of America (ICBA), Spencer, NY............................. 78
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Accion Opportunity Fund...................................... 85
CAMEO - California Association for Micro Enterprise
Opportunity................................................ 88
CBA - Consumer Bankers Association........................... 90
CDC Small Business Finance (CDCSBF).......................... 92
Chairtable Nonprofit Letter.................................. 94
JCN - Job Creators Network................................... 97
WHAT COMES NEXT? PPP FORGIVENESS
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WEDNESDAY, SEPTEMBER 1, 2021
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., via
Zoom, Hon. Nydia M. Velazquez [chairwoman of the Committee]
presiding.
Present: Representatives Velazquez, Mfume, Phillips,
Newman, Bourdeaux, Carter, Chu, Evans, Delgado, Houlahan, Kim
of New Jersey, Craig, Luetkemeyer, Williams, Hagedorn, Stauber,
Meuser, Tenney, Garbarino, Kim of California, Van Duyne,
Donalds, Salazar, and Fitzgerald.
Chairwoman VELAZQUEZ. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during remote
proceedings. All Members are reminded that they are expected to
adhere to the standing rules, including decorum, when they are
participating in any remote event.
With that said, the technology we are utilizing today
requires us to make some small modifications to ensure that the
Members can fully participate in these proceedings. House
regulations require Members to be visible through a video
connection throughout the proceeding, so please keep your
cameras on. If you have to participate in another proceeding,
please exit and log back in later.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party and
will recognize that Member at the next appropriate time slot,
provided they have returned to the proceeding.
Should a Member's time be interrupted by technical issues,
I will recognize that Member at the next appropriate spot for
the remainder of their time once their issues have been
resolved.
In the event a witness loses connectivity during testimony
or questioning, I will preserve their time as staff address the
technical issue. I may need to recess the proceedings to
provide time for the witness to reconnect.
Finally, remember to remain muted until you are recognized
to minimize background noise. In accordance with the rules,
staff have been advised to mute participants only in the event
there is inadvertent background noise. Should a Member wish to
be recognized, they must unmute themselves and seek recognition
at the proper time.
Seventeen months ago, during the early days of the COVID
crisis, this committee and our counterparts in the Senate
worked together to create emergency relief programs to assist
small businesses. At that time hundreds of thousands of small
firms across the country were closing their doors to protect
their customers and their employees.
Recognizing the dire nature of this situation, Congress
created the Paycheck Protection Program. The PPP was an
unprecedented government effort that sought to distribute
hundreds of billions of dollars to entrepreneurs so they could
keep their lights on and pay their employees.
Over the course of the past year, Congress replenished the
funds multiple times and made critical improvements to make the
program more equitable for the smallest of small businesses and
the underserved. More than $800 billion in critical PPP support
was provided to small businesses during their time of need.
PPP was never perfect, but thanks to the hard work of SBA
employees and necessary reforms made by Congress, the program
has helped saves millions of businesses from permanent closure.
With conditions improving from the loss of the pandemic, it is
vital that this committee turn to what may be the most
important part of the program, the federal government's promise
that this loan can be forgiven and converted into grants.
PPP guidelines stipulated that SBA should forgive loans if
small businesses spent funds on meeting payroll costs and other
related expenses.
SBA has already received 5.6 million loans for business
requests and made over 5.2 million forgiveness payments. This
means that approximately 46 percent of all PPP loans have
received payments. This statistic represents progress, but also
shows that there is a long way to go.
Unexpected debt can hinder a small employer's recovery and
cloud its path to future growth, so we must examine the
obstacles preventing recipients from loan forgiveness and work
to obviate them.
I look forward to discussing how the SBA is working to make
PPP forgiveness as simple as possible and examining solutions
to maximize total loan forgiveness, especially for small dollar
borrowers.
I would now like to yield to the Ranking Member, Mr.
Luetkemeyer, for his opening statement.
Mr. LUETKEMEYER. Thank you, Madam Chair, and thank you for
calling this very important hearing on Paycheck Protection
Program, loan forgiveness, and the process.
With the program's application window now closed, Members
of Congress must examine the back end process that focuses on
forgiveness to insure the program concludes appropriately,
prudently, and smoothly for small businesses.
Prior to the pandemic, small businesses were displaying
optimism, confidence about their economic future. Through a
smart tax environment driven by the 2017 Tax Cuts and Job Act
and former President Trump's deregulatory actions. Such as
cutting two regulations for every new one, these small
businesses were investing in their companies, their employees,
and their communities. Unfortunately, COVID-19 and overwhelming
State and local shutdown mandates devastated the nation's
smallest firms.
From being closed entirely to altered capacity
restrictions, these measures force small businesses into
survival mode. Not surprisingly, many small businesses adapted
and performed to the best of their ability under dire
circumstances. That is what they do. Federal government
assistance, like the PP, provided an avenue toward recovery and
focused efforts on the nation's more than 60 million small
business workers and employees.
The PPP proved to be successful due to the efforts of
private sector lenders who partnered with the Small Business
Administration and the Department of Treasury to deliver funds
to small businesses with speed and efficiency. As the program
continues to shift towards forgiveness.
Today's hearing will show a completely different
perspective for lenders who participated in the program. If a
small business adhered to the rules set out in legislation and
the guidance produced by SBA and the Treasury Department,
forgiveness should be attainable.
Congress examined this process in 2020 and created a
streamlined forgiveness process for all loans below $150,000 in
a December COVID package. The SBA has also taken steps to
simplify the process to that end. As I have been examining
SBA's new direct forgiveness process, it has come to my
attention that lenders have received multiple messages which
quite conceivable could be considered a threat from the SBA on
potential for enhanced lender audits based on their
participation within the direct forgiveness process or if they
had not offered 2021 PPP borrows an opportunity to move through
loan forgiveness.
One thing is clear. There are multiple legitimate and
prudent reasons why lenders haven't joined the SBA's new direct
forgiveness portal, including the fact that some lenders have
had systems and portals up and running for months. And I cannot
stress enough this next reason, which is many lenders would
like to assist their small business borrowers through the
completion of this program.
I will not stand by and let lenders who are punished for
working closely with their small business borrowers, the SBA,
their dismal performance and attempt at direct lending through
the EIDL program to provide a warning to everybody that the SBA
is ill-suited to perform many of these tasks. I will continue
to watch these developments closely.
At today's hearing I look forward to hearing more about the
relationship between SBA and private sector lenders. Has there
been an open line of communication? And where should
improvements be made going forward?
Additionally, I am also concerned about further changes to
the forgiveness process that can open the program to increased
levels of waste, fraud, and abuse. Granting blanket forgiveness
has the potential to remove critical safeguards that are in
place to ensure that American taxpayer dollars are protected.
PPP loan forgiveness oversight is even more important
considering recent reports indicating that certain fintech
lenders have been connected to many of the program's most
problematic loans. These are significant issues that I plan to
continue to examine closely. As Members of Congress assist the
small business economic recovery, we must not ignore the
barriers being enacted that will prevent small business growth
in the future.
At a time when most small businesses are simply trying to
stay afloat, President Biden and congressional Democrats are
pushing tax increases on both the corporate and individual
levels, the elimination of step-up basis on inheritance, and a
slew of other harmful changes. These tax changes have
implications for all small businesses and farms, and main
street USA should not be forced to pay for the Democrats'
outrageous and unnecessary spending agenda.
Our nation's small businesses are already facing worker
shortages and skyrocketing inflation. We should be creating an
environment that allows small businesses to create jobs,
expand, and grow, not perpetuating an environment that requires
them to scale back.
I want to thank all of the witnesses for joining us today,
and I look forward to our discussion.
Madam Chair, with that, I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The
gentleman yields back.
I would like to take a moment to explain how this hearing
will proceed. Each witness will have 5 minutes to provide a
statement and each committee Member will have 5 minutes for
questions. Please ensure that your microphone is on when you
begin speaking and that you return to mute when finished.
With that, I would like to introduce our witnesses.
Our first witness is Ms. Tracy Ward, the director of the
Self-Help Ventures Fund 504 loan program, who has led the way
for her CDFI in helping very small borrowers access to the PPP
program.
In 2020 and 2021, Self-Help made just under 2,800 PPP loans
totaling $253 million in COVID-19 relief funding. 65 percent of
their PPP borrowers were small businesses and nonprofits led by
people of color. Self-Help is affiliated with the Center for
Responsible Lending, a national nonprofit for research on
policy organization dedicated to protecting home ownership and
family wealth by working to eliminate abusive financial
practices.
Thank you for joining us today, Ms. Ward.
Our second witness is Ms. Leslie Payne of Affinity Federal
Credit Union in Basking Ridge, New Jersey. Ms. Payne is the
credit union's Assistant Vice President for commercial lending
and has been personally involved in the credit union's PPP
lending. Her credit union has updated to the SBA direct
forgiveness platform, so we look forward to hearing about her
Members' experience. Today she is testifying on behalf of the
National Association of Federally Insured Credit Unions.
Thank you for joining us today, Ms. Payne.
Our third witness is Ms. Marla Bilonick, the President and
CEO of the National Association of Latino Community Asset
Builders or NALCAB. She also serves as CEO of NALCAB's
subsidiary asset management company, Escalera Community
Investment. NALCAB is a nationwide network of over 130 mission-
driven organizations that are encore institutions in
predominantly Latino communities.
Ms. Bilonick brings over 20 years of expertise in small
business development and community-based financial services
with an emphasis on the U.S. Latino population.
Ms. Bilonick testified before the committee last Congress
on issues related to underserved business development.
It is my pleasure to welcome her back to the committee.
The Ranking Member, Mr. Luetkemeyer, will now introduce our
final witness.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Our next witness is Mr. Robert Fisher. Mr. Fisher is the
president and chief executive officer of Tioga State Bank
located in Spencer, New York.
In addition to his leadership role at the century-old Tioga
State Bank, Mr. Fisher is currently the Chairman of the
Independent Community Bankers Association of America, also
known as ICBA. Additionally, he is a Member of ICBA's Federal
Delegate Board and its policy development and nominating
committees, not to mention Mr. Fisher is a fifth generation
community banker. He is also a graduate of the University of
Notre Dame and a United States Air Force veteran.
Mr. Fisher, I want to thank you for taking time away from
running your bank to join us today, and I want to thank you for
your service to our nation.
I also want to thank the other witnesses for joining us and
look forward to your questions. Thank you for doing all you can
while we are in this pandemic era here, a unique time that we
have been involved in this. Your testimony today is going to be
very important to us to be able to understand some of the
issues that you face and that we need to be addressing.
Thank you very much.
And with that, Madam Chair, I yield back.
Chairwoman VELAZQUEZ. Thank you all for being here today.
Ms. Ward, you are recognized for 5 minutes.
STATEMENTS OF MS. TRACY C. WARD, DIRECTOR OF THE SBA 504 LOAN
PROGRAM, SELF-HELP VENTURES FUND; LESLIE PAYNE, ASSISTANT VICE
PRESIDENT OF COMMERCIAL LENDING, AFFINITY FEDERAL CREDIT UNION,
ON BEHALF OF THE NATIONAL ASSOCIATION OF FEDERALLY-INSURED
CREDIT UNIONS; MARLA BILONICK, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL ASSOCIATION FOR LATINO COMMUNITY ASSET
BUILDERS-NALCAB; AND ROBERT FISHER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, TIOGA STATE BANK, CHAIRMAN, INDEPENDENT
COMMUNITY BANKERS OF AMERICA (ICBA)
STATEMENT OF TRACY C. WARD
Ms. WARD. Thank you, Chairwoman Velazquez, Ranking Member
Luetkemeyer, and Members of the committee. My name is Tracy
Ward, and I represent Self-Help, a Community Development
Financial Institution, and a PPP lender. Thank you for the
opportunity to provide testimony today.
At the start of the pandemic, Congress came together to
create the Paycheck Protection Program, delivering urgently
needed funds to small businesses to limit mass layoffs and
business closures. Congress designed PPP as a forgivable loan
with the explicit promise that funds spent properly would not
have to be repaid. Today we are asking for several fixes to PPP
forgiveness to ensure that promise can be kept.
SBA implementation of this unprecedented program was
remarkably fast, but it came with a complex and constantly
changing set of rules, and Congress placed the burden of
understanding these rules on small business borrowers, quite a
challenge for small businesses in survival mode scrambling to
access limited funds. As a result, many of the smallest
businesses are not getting that promised forgiveness--even when
they have spent every penny properly.
For example, an independent contractor in Illinois received
a much-needed PPP loan of just under $20,000. Two days before
he applied, SBA issued a new rule effective immediately that
limited the way businesses like his could document the request,
so now his loan is not forgivable, even though he completed his
application in good faith and spent the funds properly. This
Black-owned microbusiness instead of being able to recover is
being held back by an unexpected $20,000 debt trap.
Congress and SBA have recognized and addressed some of the
unintended challenges faced by the smallest businesses in
accessing PPP loans. One significant change was an adjustment
earlier this year in the loan amount calculation for most
microbusinesses, sole proprietors, independent contractors, and
self-employed individuals, the smallest of the small; but that
change was not applied retroactively, denying thousands of
businesses adequate relief.
One such business is a Black-owned child care in North
Carolina, which received only $2,750 in PPP funding. Had this
change been retroactive, she would have been eligible for an
additional $14,000 to support her operations. And despite
Congress making this exact same change retroactive for small
farmers and ranchers, other microbusinesses, like this child
care, were left out.
It is important to remember that these challenges are
exacerbated for small businesses of color, which are
overwhelming microbusinesses that entered the pandemic credit
starved and with limited access to mainstream banking services
due to structural limitations that have been well documented by
our affiliate, the Center for Responsible Lending, and by
others.
We propose several clear fixes to the forgiveness rules to
ensure fairness and to avoid inadvertently causing further harm
to the smallest businesses who are the least able to sustain
it.
One, eliminate ``gotcha'' denials of loan forgiveness due
to sudden changes in rules that were imposed without notice.
Two, rescind SBA's January 15, 2021 rule denying
forgiveness to borrowers who made good faith errors.
Three, require lenders to opt in to SBA's direct
forgiveness portal if they are unduly slow processing
forgiveness or if they are unresponsive to their borrowers. The
portal should expand the options for forgiveness, not limit it.
Four, alleviate unnecessary paperwork burdens for the
smallest businesses by automatically forgiving loans of $25,000
or less. These microbusinesses overwhelmingly should qualify
for full forgiveness based on program rules.
Finally, improve and refocus SBA's loan review process to
ensure that fraudulent activity is prosecuted and that
businesses who applied in good faith are not harmed by
uncertainty and delay.
In this ongoing crisis, small businesses deserve
responsible follow-through on PPP's promise so they can get
back to running their businesses and employing their
communities. Without changes, the forgiveness stage of PPP will
exacerbate preexisting inequities, and for many of the smallest
businesses, will turn Congress' promise into a bait and switch.
Thank you for addressing this important issue, and I look
forward to your questions.
Chairwoman VELAZQUEZ. Thank you, Ms. Ward.
Ms. Payne, you are recognized for 5 minutes.
STATEMENT OF LESLIE PAYNE
Ms. PAYNE. Good afternoon, Chairwoman Velazquez, Ranking
Member Luetkemeyer, and Members of the committee. My name is
Leslie Payne, and I am testifying today on behalf NAFCU. I am
the AVP of commercial lending at Affinity Federal Credit Union.
Over the last 18 months, I have been tasked with the
implementation and day-to-day management of the PPP initiative
at Affinity. I am proud of the work that we have done to help
our Members through these challenging times, and I thank you
for the opportunity to appear before you today to discuss the
PPP forgiveness process.
Credit unions have gone above and beyond to ensure small
businesses in their communities are taken care of during the
pandemic. Though Affinity was already an SBA lender, many
credit unions signed on as PPP lenders despite not having done
SBA lending before.
An analysis of the SBA's PPP data shows that credit unions
made loans in amounts much lower than the national average, and
credit union PPP loans went to the smallest of small
businesses.
Affinity provided 1,058 PPP loans in the first round of the
program, totalling approximately $58 million in lending. We
provided an additional 603 loans in the second round for
approximately $38 million. Our overall average PPP loan was
approximately $56,000, with over 90 percent of loans $150,000
or under. Our smallest PPP loan was approximately $700, while
our largest was approximately $1.7 million. Borrowers have come
to rely on their credit units to assist them through every
phase of the PPP process, including forgiveness. The initial
complexity of the PPP forgiveness process posed challenges for
many small businesses who may not have the staff or the
expertise for such a complex application.
We were pleased to see Congress enact a simplified
forgiveness process for loans under $150,000. However, credit
unions continue to grapple with simultaneously processing loan
forgiveness applications while meeting the routine needs of
their small business Members. Many credit unions, such as
Affinity, have invested money to create a solution for Members
to complete online applications and upload supporting
documentation or work with a third-party vendor to streamline
the overall process.
A primary source of frustration for credit unions on
forgiveness has been the SBA's ongoing requests for additional
documentation for applications under review even for small
dollar loans. Still, almost 80 percent of our PPP loans at
Affinity have been forgiven. For Affinity's forgiveness
applications overall, it has taken on average 9 days from
application submission to SBA approval. For forgiveness
applications that have been placed under review, it has taken
an average of 47 days.
SBA's recent introduction of the revenue reduction score is
a welcome change will help expedite the forgiveness process.
The SBA also recently launched the Direct Borrower Forgiveness
Portal. At Affinity, despite the time and money invested in
implementing solutions to process forgiveness applications in-
house over the last year, we are one of many credit unions that
have opted into the portal. Although the process streamlines
the borrower's experience, it does not necessarily streamline
the process for all lenders as many will have to monitor the
SBA system and update their commercial lending platforms
manually. However, the portal offers smaller credit unions that
have not had the ability to leverage a third party vendor or
lack the means to develop a streamlined in-house process, a
simple solution to process forgiveness applications.
Despite many opting into the portal, credit unions
generally feel it would have been more beneficial at the onset
of the forgiveness process. Some credit unions are choosing to
not opt into the program because they feel the systems they
have created are more consumer friendly. Moreover, integrating
the new portal is operationally burdensome.
There are also concerns that the SBA will not answer
borrowers' questions in a timely or complete fashion. It was
very difficult to get answers in a timely manner last year, and
some credit unions fear that borrowers will use the portal and
then come back to their lender with questions, but the lender
has no control over the system and will not be able to assist
the borrower.
At Affinity we have had some frustrations with the process,
such as the SBA communicating directly with borrowers without
alerting lenders, and the SBA not alerting Members that
borrowers apply directly for forgiveness.
Two ways that Congress can take to improve the forgiveness
process would be, one, increasing the loan size for the use of
the portal and revenue reduction score and, two, urging the SBA
to follow up on its commitment to focus its review on larger
and higher risk loans. Adopting this approach to forgiveness
reviews will conserve the SBA's resources and allow the agency
to more efficiently allocate their finite resources to those
PPP loans that warrant additional review.
In conclusion, we are proud of how we have been able to
help our small business Members stay afloat and retain
employees through the PPP. At Affinity, like at all credit
unions, our priority is our Members. Our team has been and
remains committed to guide our Members through the PPP
experience successfully.
I again thank you for the opportunity to appear before you
today, and I welcome any questions that you may have.
Chairwoman VELAZQUEZ. Thank you, Ms. Payne.
Ms. Bilonick, you are now recognized for 5 minutes.
STATEMENT OF MARLA BILONICK
Ms. BILONICK. Thank you.
Good afternoon, Chairwoman Velazquez, Ranking Member
Luetkemeyer, and Members of the committee. My name is Marla
Bilonick, and I am the president and CEO of the National
Association of Latino Community Asset Builders, otherwise known
as NALCAB. It is my sincere honor to be addressing you today
about Paycheck Protection Program forgiveness and speaking on
behalf of NALCAB, our Member organizations, and the small
businesses that they represent.
NALCAB is the hub of a national network of over 140
mission-driven organizations that are anchor institutions in
geographically and ethnically diverse Latino communities across
the nation.
Our vision is to dramatically scale the flow of public and
private sector capital that responsibly meets the asset-
building needs and opportunities in the communities we serve.
As a grant maker and U.S. Treasury certified CDFI lender,
NALCAB strengthens and coordinates the capacity of the NALCAB
network to deploy capital.
We know that the strength of the U.S. economy relies on the
fast-growing Latino communities' hard work, entrepreneurial
experience, spending power, and leadership. While the Latino
community in the United States is often heralded for starting
small businesses at rates higher than other ethnic groups, the
adverse economic effects of the pandemic have
disproportionately impacted Latino business owners.
Stanford's Latino Entrepreneurial Institute surveyed 7,000
small business owners and cites that 86 percent of Latino-owned
businesses suffered immediate negative financial impacts from
the pandemic. At the same time, Latino business owners were
successful at securing PPP loans at only half the rate of their
White counterparts and only 3 percent of Latino-owned
businesses received their full funding request.
NALCAB was called upon to provide capital to several
Members to facilitate their PPP lending. As a CDFI in our own
right, we ultimately loaned our Members close to $12 million
for PPP loans which resulted in them making 640 loans to small
businesses in their communities.
NALCAB Member CDFIs, including heavy hitters like Accion
Opportunity Fund, Self-Help, LiftFunds, and CDC Small Business
Finance, were able to provide business clients with PPP loans
when banks could not or would not.
In fact, NALCAB Member and CDFI, Prestamos CDFI was the
third highest PPP lender in the nation, including traditional
commercial banks. Prestamos made close to 500,000 PPP loans
averaging around $15,000 each, for a total of close to $8
billion in PPP lending. JP Morgan Chase and Bank of America
topped the ranking with over $12 billion and over $9 billion
respectively.
As of August 2021, roughly half of PPP borrowers had
submitted forgiveness applications with the other half
outstanding. Advances have been made to streamline PPP
forgiveness, including the July launch of the Direct
Forgiveness Portal which is an immediate and simplified
clearinghouse for forgiveness applications attached to loans of
$150,000 and below.
Discussions with CDFI Members of NALCAB point to the portal
now being the primary channel available in seeking loan
forgiveness for their small business clients. Between April and
August, the forgiveness applications process practically
doubled from the national number reported in April. This may be
partially attributed to the Direct Forgiveness Portal.
Number three ranked PPP lender and NALCAB Member Prestamos
CDFI reports that they are directing clients almost exclusively
to the SBA PPP forgiveness portal and have found that to be a
straightforward avenue for achieving forgiveness. However, they
noted that they fear that some clients are missing out on loan
forgiveness due to lack of awareness of the process and/or lack
of access to technology to connect to the portal.
The additional CDFI Members we spoke with from coast to
coast all reported the portal was now their primary channel for
client forgiveness, even in the cases where they had developed
their own technology ahead of the portal.
While only a sliver of NALCAB PPP lenders made loans over
five figures, we are supportive of stretching simplified
forgiveness process for loans up to $350,000. This would
further ease the burden on even more small businesses that are
doing their best to power through recovery. In addition, it
would lighten the administrative load of lenders that have
supported those businesses through their PPP journey. We agree
that PPP loans of $350 thousand and above are in a different
class and justify higher scrutiny.
Loans that were made in the initial stages of the Paycheck
Protection Program in 2020, when there was some confusion
regarding calculations around loan sizing, have resulted in
good faith error that generated some PPP loans that exceeded
borrowers' correct maximum amount. In January of 2021, the
SBA's procedural notice informed PPP lenders of said excess
loan amount errors. Particularly in cases of smaller amounts,
small loan amounts, this seems like undue efforts to squeeze
dollars out of the very borrowers that the PPP program was
designed for, borrowers that most certainly used every cent of
their PPP loan to ensure their businesses stayed afloat and to
keep their employees on payroll.
I don't believe I have time to go into my recommendations,
but they were outlined in the content of the testimony.
Chairwoman VELAZQUEZ. Thank you.
Ms. BILONICK. Thank you very much for your time.
Chairwoman VELAZQUEZ. Thank you, Ms. Bilonick.
Mr. Fisher, you are now recognized for 5 minutes.
STATEMENT OF ROBERT FISHER
Mr. FISHER. Chairwoman Velazquez, Ranking Member
Luetkemeyer, and Members of the committee. I am Bob Fisher,
president and CEO of Tioga State Bank, a $550 million community
bank in Spencer, New York, and Chairman of the Independent
Community Bankers Association of America. So thank you for the
opportunity to testify at today's hearing.
The PPP was a natural fit for the business model of
community banks. We are small business lending specialists with
local knowledge and deep roots of the communities that we
serve.
My bank's PPP lending is typical of a community bank. We
made a total of 929 loans for $64.8 million, saving roughly
10,000 jobs. Our average loan was just under $70,000, and Tioga
State Bank's 40-year history as an SBA 7(a) lender helped us to
navigate sometimes challenging SBA channels on behalf of our
borrowers.
Our largest PPP loan, $2.7 million, was to a southern tier
independent center. They are a large not-for-profit in
Binghamton, New York, dedicated to helping people with
disabilities remain independent. The loan helped prevent staff
layoffs and allowed the center to continue to provide critical
services in our community.
Other community banks have similar stories and results. In
aggregate, community banks made nearly 60 percent of the PPP
loans which supported nearly 50 million jobs. What's more,
community banks made over 80 percent of PPP loans to minority-
owned and women-owned small businesses and nearly 70 percent of
the PPP loans to veteran-owned small businesses. I am proud
that my industry stepped up to support the survival of these
diverse businesses in a time of crisis.
We are well into the forgiveness phase of the program, and
this process must be as simple as possible for borrowers so
that they can focus on operating their businesses in a still
uncertain environment. We are grateful to this committee and
Congress at large for its role in making statutory changes and
advocating for a streamlined process.
As you know, the SBA has created the Direct Borrower
Forgiveness Portal for PPP loans of 150,000 or less. My bank
has a strong record of processing forgiveness applications and
has chosen not to use the portal. Like many community banks,
our true value proposition is relationship lending. We believe
we owe it to our borrowers to ensure a smooth process from
origination until full forgiveness. If there are technical or
communication problems with the SBA--and this has, frankly,
been a major concern--we want to use our expertise and
relationship with the agency to resolve them. This is good
business practice and best for our borrowers. We are working
expeditiously and are as eager as our borrowers to obtain full
forgiveness.
ICBA insists that SBA respect lenders' choice to not use
the portal. Instead. The SBA has threatened to audit these
lenders. What's more, the SBA suggests that lenders are
deliberately delaying forgiveness to spread out fee income.
That practice would be unacceptable and would cut against the
grain of community bank relationship lending. I can assure you
that no community bank that I know of is engaging in it.
Our strong record of PPP lending in a time of crisis must
not be diminished by these accusations. My bank and other
community banks choose to preserve our borrower relationships
and not be cut out of the process by a direct SBA program. More
broadly, bank underwriting and servicing is what makes SBA
lending programs so effective and must not be displaced by
direct programs.
As we conclude the PPP, reports of fraud and abuse have
surfaced in the media. These problems must be reduced to the
greatest extent possible not only in the PPP but in all SBA
programs. My bank has experienced no PPP fraud and 100 percent
forgiveness. Like other community banks, we own the
consequences of our lending decisions and underwrite with great
care. However, certain lenders with little experience in
underwriting or with the SBA crowded into PPP. Safeguards were
lowered in response to the crisis and, not surprisingly, these
lenders may be subject to higher incidents of fraud.
As normal state returns, the SBA should proceed with great
caution as it considers changes to existing programs. Tioga
State Bank and many community banks highly value a robust and
sustainable 7(a) program. Fraud puts all SBA programs at risk.
Thank you again for convening today's hearing and for the
opportunity to offer my perspective, and I am happy to answer
any questions you may have.
Thank you.
Chairwoman VELAZQUEZ. Thank you, Mr. Fisher. Thanks to all
of the witnesses for being here today and for your work and
engagement on the PPP.
I will begin by recognizing myself for 5 minutes.
Ms. Payne, less than one-quarter of all PPP lenders have
updated to the SBA direct forgiveness platform. Even though
your credit union invested in its own platform, you also
updated to the SBA platform.
Can you share with us any feedback your borrowers have had
on the SBA platform?
Ms. PAYNE. Yes. Thank you for the question.
We have opted in, and largely we opted in, we have a system
in place that has been working quite well. We jumped on the
forgiveness quite early in the process and put things in place
that we needed to do. We made our investments and such. We
opted in because we want to give our borrowers every
opportunity for forgiveness, so we have offered that.
To date, since the portal has opened, the Direct
Forgiveness Portal has opened, we have seen approximately 12
percent of our borrowers go to the direct portal. So the
majority of our Members are still coming to us to directly go
to our portal for forgiveness.
But what we have heard from our Members is that, from their
perspective, that the portal has been user friendly. From the
lenders' perspective, this creates more manual process for us.
As we do have our own process in place, we have to proactively
go into the SBA portal and check the website, and then manually
we are inputting data in the beginning of the process as well
as at the end of the process.
So another concern that we have is in the early stages--we
are still in the early stages, and there are still some
unknowns with regard to the confusion and communication that
our borrowers will get from the SBA and when they will get that
communication.
Chairwoman VELAZQUEZ. Thank you.
Ms. Ward, we have heard from borrowers that they are
responsible for paying, with interest, excess loan amounts
caused by PPP miscalculation from a lack of rules and clarity
early in the program.
Should this excess loan amount be forgiven if loan proceeds
were spent on forgivable purposes?
Ms. WARD. We believe they should. We have seen many
borrowers that are facing issues where they applied, based on
the current rules in place as they understood them; but because
the rules were complicated: some businesses were able to
include owner healthcare costs, some were not. Some could
document payroll showing 941s, others had different methods
that could be more complicated.
So we are seeing borrowers that are caught in this issue of
having applied in good faith for a loan that they then used to
keep their business operating, to keep their staff employed,
and now at forgiveness, because the rule may have changed
within days of when, they applied, they are not going to be
able to get full forgiveness and they are caught in that.
Chairwoman VELAZQUEZ. How is your institution handling
these good faith errors?
Ms. WARD. So we are working with our borrowers when we find
situations like this--I will say, luckily, we are not finding
many situations like this within our own PPP borrowers. We had
processes in place and worked closely--as Mr. Fisher said,
community banks are very--have a relationship and work hard
with our borrowers to try and make sure that they understand
the loan they are getting and how to get this forgiveness.
Chairwoman VELAZQUEZ. Okay.
Ms. WARD. We are hearing and seeing news reports about
especially small lenders, small borrowers who are caught in
this and are not going to be able to get forgiveness. We have
been able--on a couple of cases where we have borrowers in this
situation at Self-Help, we are working with them to try and
identify are there other potential documents they have that
might help us get them to full forgiveness.
Chairwoman VELAZQUEZ. Thank you.
Ms. Payne, any comments on the PPP miscalculations?
Ms. PAYNE. Yes. I think we have experienced several loans.
With the initial PPP guidance, it was continuously evolving.
Both the Members and lenders were trying to get their arms
around the guidance and the rules, a very stressful and chaotic
time.
I think that each loan should be looked at on its own
merits. If there was an error and it was made in good faith but
the use of the funds was permitted, then I believe that these
loans should be considered for full forgiveness.
Chairwoman VELAZQUEZ. Thank you.
Ms. Bilonick, would you support increasing the qualifying
loan amount to $350,000 to help SBA deliver forgiveness more
efficiently and enable more small businesses to focus on their
recovery?
Ms. BILONICK. Absolutely. I think anything that will reduce
the burden on both the borrowers and the lenders is a positive
and should be supported. This would bring the percent over 90
percent of PPP loans, and I think it is a sound recommendation.
Chairwoman VELAZQUEZ. Thank you.
My time has now expired. The Ranking Member, Mr.
Luetkemeyer, is now recognized for 5 minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair.
And just to comment first, you know, whenever you see that
basically one in six loans are made by fintechs and 9 out of 10
of those we are looking at as fraudulent and most of those
loans are under $350,000, and the OG report--IG report said
that half the loans under $350,000 are probably where your
theft, identity theft and fraud are, for us to not look at
those is, like, the administration leaving $85 billion worth of
military equipment behind in Afghanistan for no reason
whatsoever.
This is nuts for us not to go after people who have
intentionally gamed the system and are making away with dollars
that the taxpayers have paid in and half the program would not
be looked at. This is--I think it is a very, very wrong way to
approach this.
Mr. Fisher, you talked about in your testimony something
that is very, very concerning to me with regards to the SBA and
their threat to audit entities, banks, credit unions, other
entities that may do PPP loans if they don't participate in the
portal.
What is your experience with this? What have you heard
about this? Can you elaborate on it? I know you said in your
testimony--I'm reading it as well. Would you like to elaborate
just a little bit on that, please?
Mr. FISHER. Sure. We received communication from SBA on
Monday that there was potential for audit if you did not
participate in the portal, the forgiveness portal. And from day
one, we decided we wanted to be that interface between our
customer and the SBA because it is, it is a very confusing,
complicated process. And we feel that we have got the
expertise. The customer doesn't.
So we want to, you know, control that relationship and help
our customer navigate through this whole forgiveness process,
and we don't feel we should be--we have worked forgiveness very
hard. In fact, we only have five loans from the first round
that are still waiting for forgiveness, and it is not for a
lack of effort on our part. We have been reaching out to those
borrowers to get them to seek to apply for the forgiveness.
Mr. LUETKEMEYER. So it is a choice on your part how you
want to approach forgiveness, and the SBA is trying to threaten
you into making the choice, their choice, basically. Is that
right?
Mr. FISHER. That is how it feels, yes.
Mr. LUETKEMEYER. Well, I would urge you if you find banks
that have received this threat and then receive an audit as a
result of that, please contact me and my office. We want to
follow up on this. We want to hold SBA accountable for
outrageous statements like this. This cannot go unchallenged.
This cannot be allowed to happen. So, please, work with us if
you see this happening within the banking community that you
work and your association works with.
Thank you so much for that.
You know, you made some great statements here, Mr. Fisher,
as you were going through discussing the banks making the
loans. You know, the banks have something called know your
customer, and in doing that, I think we have found that----
And as I mentioned earlier, the fintechs don't have that
sort of firewall and, as a result, they are the ones that are
causing a lot of problems here, although there is not a lot of
problems with PPP compared to, like, the EIDL program which has
got almost a third of it which is the most fraudulent stuff.
But the underwriting that you are able to provide and the
know your customer seems to be a real key in being able to
minimize the fraud, minimize the abuse, and also set you up for
being able to get forgiveness for your customers because you
have done it right. Would you agree?
Mr. FISHER. I totally agree. I mean, that is--we know our
community. We know our customers. And I think that is what made
the process work for community banks and why we were able to do
60 percent of the PPP lending.
Mr. LUETKEMEYER. It is concerning to me that, you know, as
we continue to go through this process here and we are looking
at--and I don't believe to bring the EIDL program into the PPP
discussion here unnecessarily, but I think it lends--the PPP
program here, by having had the banks do the underwriting, be
able to do the hard work of know your customer and prepare the
loans to be able to be approved by SBA, showed that that is a
template I think for being able to do things the right way and
minimize fraud and abuse.
When you look at SBA's direct lending program, which is the
EIDL program, and how fraught it is with fraud, it really sets
up the contrast of does SBA really need to be in the direct
lending business.
So would you like to address that question?
Mr. FISHER. We have always felt that, you know, with the
7(a) program and 504 programs that community banks--you know,
we have that relationship with our borrowers, and I think it
really has reduced fraud. As I said, we experienced zero fraud
in our PPP lending, and I think that just shows how
relationship banking works and how utilizing community banks to
be the interface with small business is so effective.
Mr. LUETKEMEYER. Thank you very much for your testimony,
Mr. Fisher. We certainly appreciate your thoughts and
observations today.
Thank you.
With that, Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
I now recognize the gentleman from Maryland, Mr. Kweisi
Mfume.
Mr. MFUME. Thank you, Madam Chair. Thank you for calling
this hearing.
Ms. Payne, I would like to just start with you, if I might.
From your own perspective, what were some of the considerations
that went into you offering your own PPP forgiveness platform
as opposed to the SBA's?
Ms. PAYNE. Well, the first consideration was that there was
no platform that the SBA was offering or putting out there. The
forgiveness process was technically to start almost
immediately. We took our first forgiveness application in
September of 2020. So we needed to put something in place, and
we did. We bought a software program, we trained our staff, and
we pulled other resources. We wanted to be responsive. This was
a temporary loan to help these businesses get through a very
chaotic and traumatic time, and they needed to know that this
was going to be forgiven, not that they had additional debt.
So so many wanted to get forgiven as soon as they could, so
we responded to our Members' needs, and that is what we did. We
initiated our own platform, and we invested the time and
resources and money to do that to be responsive.
Mr. MFUME. So most of your credit union Members have used
your platform rather than the SBA's platform. I would ask you,
how would you evaluate the borrower outcomes? Are they
comparable? Are there things that jump out at you that are
cause for alarm?
Ms. PAYNE. No. We have not had too much cause for alarm.
The process, I will admit, early on was slow as we were
learning it, and we did not necessarily anticipate the number
of loans going under review. When we started, they were taking
10 percent of our loans and putting them under review, and that
creates very much the back-and-forth problem, and it is time-
consuming for our Members and it is stressful.
They don't know why they are under review, and we can't--
you know, we don't know if it is random or otherwise. But in
that sense, that process started slowly; but once we got up and
running and really hit stride, we haven't seen any major
issues. It is just when we go under loan review, it can be very
time-consuming; but we have per my testimony, we have submitted
80 percent of our portfolio has gone through the review
process.
Not all are 100 percent forgiven, but there are some that
have some partial forgiveness; but overall we have had very
good success rate on behalf of our Members.
Mr. MFUME. Mr. Fisher, if I could turn to you for just a
moment. You occupy a rather unique perch both as president of
Tioga and as Chairman of the Independent Community Bankers of
America. So far only about a quarter of all PPP lenders have
opted in to SBA's direct forgiveness platform.
Do you think, sir--or what do you think could have been
done differently to have made that platform more appealing to
persons? And if you had your druthers--let's hope we never go
through this again; but if we were to go through something like
this again, what would you recommend?
Mr. FISHER. I think--you know, I think the issue is most
banks had their forgiveness plan in place. We have already
developed systems. We have a methodology of how we put
customers through forgiveness, so SBA rolling this out late in
the game has made it problematic.
So I think had they wanted this portal to be used, I think
I would have rolled it out when forgiveness started. It is kind
of late in the game to throw in another ancillary system when
we already have it pretty down for our customers.
Mr. MFUME. Okay.
Thank you, Madam Chair. I have no other questions. I yield
back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. WILLIAMS. Thank you, Madam Chair.
And before I get started, I want us, all of us across this
country, to remember those 13 families that are--we are all
praying for the loss of those young men and women and also
remember those people who are still stranded in Afghanistan
this morning.
I am a small business owner, have been for 51 years. My
whole life has been done dealing with credit unions and
community banks, and I can tell you that the main street
America does it a heck of a lot better than the federal
government. And I want to say thanks to all of the lenders for
getting this program out, and it is interesting that all of a
sudden the SBA wants to get involved in the program here of
late with portals, and so forth, and now we have to have a
hearing. So just, again, the government does it better--or the
private sector does it much better than government.
When I talk to borrowers and lenders back in Texas, I
constantly hear about communication issues with the SBA. Last
week a lender told me there are some loans that have been
submitted for forgiveness as far back as January, and we are
hearing that this morning, that have yet to receive an update
after 8 months.
When the bank calls the PPP hotline for updates, it no
longer is even in service, and the SBA can't continue to leave
small business owners and community banks in the dark when they
are taking all necessary steps to recover from the pandemic,
these small business owners.
So, Mr. Fisher, thank you for your service and what you are
doing. I want to say, can you discuss your interactions with
the SBA and describe how responsive they have been to your
inquiries?
Mr. FISHER. Communication throughout the process has been
difficult, especially early on in the process. We have got some
great connections with our local SBA office, and those folks
are greatly helpful, but they are also limited in some of the
knowledge that they have and, obviously, this was a new
program, constant guidance changes, and things like that. So it
was--communication was very problematic throughout the process
and continues to be somewhat problematic in certain areas.
I know of a local bank that I just heard a story yesterday
that they had opted out of the forgiveness portal, yet their
customers all received notices from SBA saying that they could
apply through the portal, which was not active for the bank
because they hadn't opted into the program, which caused chaos
with their customer service center, so----
Mr. WILLIAMS. Well, we are hearing stories like this all
over, and I can tell you firsthand, it is tough to communicate
with them.
Lenders were given two options for PPP loan forgiveness:
Either opt into direct forgiveness with the SBA or opt out and
continue to process loans themselves. We are hearing about that
that today. Most commonly bankers did not opt into direct PPP
forgiveness for two main reasons. Lenders had already created
an internal process, which we know that, or contracted this
work out to a third party when they saw how important the
forgiveness aspect of PPP would be in the future.
In addition, as we have heard today, many banks were
reluctant to opt in because the SBA had not been the most
reliable partner in the past, and that is an understatement.
And, unfortunately, on Monday morning, as we have heard, the
SBA sent a notice to all lenders that they would be under more
intense scrutiny for their loans if they did not participate in
the Direct Forgiveness Portal, and here they are coming in late
and messing everything up.
So making this change so late in the process has caused
confusion and even more headaches for the banks who make PPP so
successful.
So, Mr. Fisher, you have touched on this, but I think we
need to talk about it even more. Can you discuss the risks you
may face due to the recent announcement from the SBA and why
you choose and chose to opt out of the direct PPP forgiveness
in the first place?
Mr. FISHER. Obviously, as I said before, they threatened
potential audits, although they sent a follow-up email that
maybe said that we wouldn't be audited, but I am not sure, you
know, which letter to believe. But I think the reason we opted
out is because we are relationship lenders. I mean, we want to
be that interface between the lender and SBA because of--it is
a complicated process, and we want to make sure that our
customers are getting the correct information, that they don't
have to learn the entire process. We know it.
We have been through it. We have worked with SBA for 40
years, so we want to be that interface, that relationship that
we have with both the SBA and our customer. We want to enhance
that.
Mr. WILLIAMS. Well, a heavy-handed government is never
good, and we are seeing that here firsthand.
Just quickly, Mr. Fisher, can you elaborate on the
importance of relationship banking for PPP forgiveness and how
more government involvement may draw out this process?
Mr. FISHER. I just think relationship banking, that is the
role--that is the key for community bank, how we interact with
our customers, and I think it really cuts down on fraud. As I
said previously, you know, we have had zero fraud. Most of the
banks that I know have had zero fraud. So I think fraud and
just having those relationships is critical.
Mr. WILLIAMS. Well, thank you for that, and the government
cannot say that. So thank you for what you are doing.
And I take my time and I yield it back.
Chairwoman VELAZQUEZ. The gentleman yields back.
I now recognize the congress lady from Georgia, Ms.
Bourdeaux.
I would just like to also say to Mr. Fisher, when we had
the first tranche of money that went out and in the first 2
weeks it was all gone, the data that we didn't get from the
administration then showed that many small businesses in
underserved communities and real small businesses were not able
to access any PPP money because they didn't have preexisting
relationships with banks.
The big banks didn't lend to those small businesses. It
wasn't until we intervened and we demanded from the Secretary
of the Treasury to set aside money for mission-based lenders,
that those data, those numbers didn't change.
The same is true now with the great work that the SBA is
doing in informing small businesses what they need to do in
order to fill out the forms and take every step to be able to--
for their loans to be forgiven.
Ms. Bourdeaux, you are recognized for 5 minutes. Thank you.
Ms. BOURDEAUX. Thank you, Chairwoman Velazquez, and I have
a similar line of questioning to some of the points that you
raised. And thank you, Ranking Member Luetkemeyer, for holding
this hearing.
This access to PPP loan forgiveness is something I have
been very concerned about since the moment I was sworn into
Congress. In particular, we have heard a lot about
discrepancies in loan forgiveness among underserved small
businesses, particularly minority-owned businesses, in my
community. And we did some informal surveys of who had gotten
loan forgiveness and who hadn't and found that minority-owned
businesses didn't know to ask, you know, didn't know how to
follow up.
And I think the testimony of Ms. Bilonick raises some of
these kind of unanticipated problems that often occur with some
of these very entrepreneurial, very vibrant businesses that
just don't have that traditional relationship with a lender.
This is one of the reasons I worked with the committee to
submit additional views to the American Rescue Plan,
encouraging the Small Business Administration to work to ensure
equitable administration of emergency assistance, including PPP
loan forgiveness.
The SBA I think took a very important step towards ensuring
greater access to loan forgiveness by opening their portal to
provide forgiveness to loans less than $150,000. Unfortunately,
as has been discussed in this hearing, you know, there is a lot
of--you know, this is also creating some tradeoffs.
But just to start off, Ms. Bilonick, can you just talk a
little bit more--you raised some of the, kind of I wouldn't
know, that I didn't know kind of issues that come up with some
of the businesses in the Hispanic community. I have a very
large Hispanic community. You know, when they are trying to
approach working towards PPP loan forgiveness, what are some of
the barriers that they face that we may not anticipate.
Ms. BILONICK. Absolutely. So I think one issue is just--and
I don't think it is exclusive to the Latino community. I think
for most individuals who applied, the process of forgiveness
was kind of just a big question mark, so I don't think that
anyone is opposed to relationship banking. In fact, I would say
all CDFIs are heavily involved in relationship banking. That is
the bread and butter of the CDFI industry. So I did take some
exception to those comments.
I think also I wanted to just raise that I think the
community-based lenders and the mission-based lenders have
opted into the portal because, unlike higher resource financial
institutions, the portal that the SBA is providing is actually
an improvement over whatever sort of internal either portal or
other system, maybe even the less sophisticated systems, that
was being used internally.
So they are directing their clients almost exclusively to
the portal because it is more straightforward, clearer, you
know, just better overall versus what they could put together
in-house.
But, yes, these challenges are real. I think--you know,
just to add one more thing, just the access to technology, I
mean, in order to access the portal, you have to have a means
of accessing it.
One other thing that our CDFI Members reported was that it
is very challenging to follow up with multiple clients. You
know, I mentioned one of our Members made 500,000 PPP loans, so
to individually follow up with each one of those borrowers
would be impossible, and so if people change their phone
numbers, close their business, or anything, you know, that is
sort of really challenging to try and reach them and then
connect them, you know, into the forgiveness process, period,
let alone the portal.
Ms. BOURDEAUX. I thought that was an interesting point
about I think of the housekeepers, and the landscapers, and
just a ton of this kind of very vibrant entrepreneurial economy
that we have, but often are not in, sort of, the traditional
path in these relationships.
What can we do better in order to make sure that a lot of
these small businesses know about the forgiveness program and,
you know, are able to access this?
Ms. BILONICK. Well, one thing I want to say prior to being
in this role, I actually was the head of a CDFI that is based
in Washington, D.C. So during the pandemic, I was in that role.
And I think what was critical to the success of either rolling
out programs or following through with them, as is happening
right now in the forgiveness process, was the direct line of
communication between the SBA and the lender.
And, so, I think you see that most in the district offices
where there is kind of a more direct relationship to the
community. But I would just actually suggest that that
continue, or, perhaps, that more resources be put behind that
so that there is someone to call up when you have a question,
and you are in a community-based organization it is just kind
of a lot of red tape and paperwork that you may not be
accustomed to working with.
So, I think having that direct tie to the SBA, and from my
experience in New York and D.C., the SBA district offices are
really knowledgeable and approachable. And I just think that is
sort of a great way to connect into the overall mission of the
SBA.
Ms. BOURDEAUX. Thank you so much.
Ms. BILONICK. Thank you.
Ms. BOURDEAUX. We work very closely with our SBA and SBDCs
and groups like that to reach out to the broader community.
Thanks so much. And I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Minnesota, Mr.
Hagedorn, for 5 minutes.
Mr. HAGEDORN. Thank you, Madam Chair.
I would like to follow up on the presentation made by our
Ranking Member Luetkemeyer, and also Congressman Williams of
Texas. First of all, I think we are very fortunate to have
someone like Congressman Luetkemeyer who understands the
community banking business and that sector so well. And he has
made some good points, that there isn't a lot of fraud, if any,
with most of the community banks. And the banks that have made
these loans, they know their customers, they are attentive to
their customers, they are concerned about their communities and
small businesses. This is a pretty good model of maybe
something we stumbled into, but looking at, perhaps, utilizing
this for other SBA loans could minimize the fraud that we have
seen and help the taxpayers and help businesses.
Second of all, Congressman Williams comes in and says,
look, he has been in business for 50 years. He has interacted
with both bankers in the private sector and then the SBA and
others in government. There is a clear difference. I mean, one
is attentive, one is trying to keep customers, one is trying to
get business, and the other one is, well, if they get to it,
they get to it. I mean, that is the way bureaucracies operate.
The record of the SBA throughout this whole process was all
good in some areas, but not so good in others. And I will tell
you that the businesses and the banks that we talk to in this
district, who have problems with SBA, they end up in our
office. They end up with us calling SBA trying to get some
resolution, trying to get people moving. And that really
shouldn't be happening. The SBA should be handling these
issues.
Now I will give you my perspective, I was a congressional
relations officer at Treasury for 18 years. I have seen the
bureaucracy a little bit. And I think this move by the SBA to
try to gain some control back of the PPP program when it was
actually run very well through the banks might be some, you
know, and effort to retain their turf. They see the writing on
the wall that if we turn over the EIDL loans and others to the
banks where we can minimize fraud and do better for our
customers, they are going to lose some of their power. So I
think that this may be not so much to help everybody, but just
as a bureaucracy, looking out for itself.
Now I would add, Madam Chair, I just want to do a couple of
housekeeping items with you. When do you expect that we are
going to get Secretary of Treasury Yellen to fulfill her duties
and testify before our committee in person?
Chairwoman VELAZQUEZ. We are working to get her to come as
well as the Administrator to discuss the PPP forgiveness, but
we are working on the reconciliation package right now. So, my
guess is right after that, we are going to have the
administration come in.
Mr. HAGEDORN. Well, to your credit, I know you have said in
the past and you joined with our Ranking Member that you had
wished she had testified a little earlier. And, so, I
appreciate you are going to continue to try to encourage her to
come before us, so we can have a hearing.
And secondly, and I know how important it is to forgive
these loans and make sure small businesses can move on. Most of
them have received these moneys and have utilized them, and
have helped. But there are some small businesses still out
there that this committee has an obligation to help. And they
would, for instance, would be in the restaurant arena with the
Restaurant Revitalization Fund. When the moneys were expended
for that, almost $28.5 billion, they went to the people on a
priority list that many of us viewed as discriminatory. And the
people who are not on the priority list are sitting out there,
well over 100,000 restaurant owners and they haven't received
any money. And Congress hasn't done anything to follow that up
to this point.
Chairwoman VELAZQUEZ. I----
Mr. HAGEDORN. Well, if I could just say, I don't think that
is fair, because people who are in the business are being
helped, and other people who may be in trouble and needing help
and going out of business are waiting. And I know the Ranking
Member has a bill, I have cosponsored it, use reconstituted
money, $60 billion. I think let's work together, please, and
get the money to our restaurant owners. They really need it at
this time.
Chairwoman VELAZQUEZ. I wish--I hear you and many others
express concerns about the fact that many underserved
businesses and the very, very small businesses didn't get any
access to PPP, even though they tried the hardest. I wish that
you were out there compelling the big banks to provide access
to those PPP. And, so----
Mr. HAGEDORN. I agree with you, Madam Chair. No, I agree
with you. I am not a big fan of the big banks. And I think the
one thing that has come out of the PPP program with underserved
folks is they do now have a banking relationship with community
banks and others. And they are in better position long-term in
order to help their small businesses and to be successful. So
for that, I think we should be----
Chairwoman VELAZQUEZ.--that the numbers were there for the
world to see.
Mr. HAGEDORN. Okay. All right.
Thank you, Madam Chair. I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from California, Ms. Chu,
for 5 minutes.
Ms. CHU. Yes. Ms. Ward, you state in your testimony that
three quarters of the PPP loans issued in 2020 included no
demographic information. This is something I pushed hard to
correct, and even most recently, sent a letter to the Biden
administration asking them to look into racial disparities in
PPP. And the lack of information caused the L.A. Times to
publish a report where they looked at Census tracts in LA. And
they found out that businesses in majority White neighborhoods
received loans at twice the rate that majority Latino Census
tracts received 1.5 times the rate of businesses in majority
Black areas, and 1.2 times the rate in Asian areas.
So, now we are in the forgiveness phase. So can you
elaborate on why this kind of data transparency is necessary?
And do you have recommendations on how to correct the data gap
in the forgiveness process? If we don't have this kind of data,
what do you feel businesses would stand to suffer?
Ms. WARD. Thank you. I think SBA has taken steps to do a
better job having lenders collect demographic data. And I think
that is really critical and important, because then we can see
what communities are being served by these programs, and where
we as lenders, SBA, Congress, need to do more to make sure that
these dollars are distributed fairly and forgiven fairly.
I will say because of the crisis and the short time period
to get a limited amount of funds, SBA was building this plane
while it was already in the air. And there were constant
changes, constant improvements made, constant clarifications,
and that made it really hard for borrowers to keep up. But by
and large, what we saw was an organization, an agency trying to
get this product out as quickly as possible. I think they had
this entirely new loan program available to small businesses
within about 2 weeks of Congress passing this. That's
unprecedented. So I really want to applaud SBA. With their
resources, this became an overwhelming challenge. I am very
happy to see that they have now been able to develop their own
direct forgiveness portal, because there were lots of,
especially the community lenders, and smaller lenders, CDFIs
that did not have the resources to develop their own. And for
those, SBA's direct portal is a significant improvement
allowing a lot more borrowers quicker access to forgiveness.
For lenders that had already created their portals like
Self Help, like some of the other lenders here today, limiting
borrowers options to get forgiven is not the right way to go.
So while I applaud SBA for creating direct forgiveness, I think
that will help get more of these loans through the forgiveness
process, lenders that are doing a good job should be able to
keep working with their borrowers.
Ms. CHU. So Ms. Ward, but I was asking about demographic
information. And so, you know, how can we correct this? And
with the forgiveness portal, can we actually get that
demographic information?
Ms. WARD. Yes, I apologize. I didn't mean to get off track
with your question.
SBA has made changes to collect demographic information
with the forgiveness process. So that is part of the
information that SBA is trying to collect now on the
forgiveness side that, in the early days and the loan
application initially, those questions weren't asked and that
makes it very hard to see where these funds were going.
Ms. CHU. Let me ask about sole proprietors, and micro
businesses and the unique challenges that they face. I want to
make sure that they get the full benefit of the programs, since
so many were devastated. Can you speak how the SBA direct
forgiveness portal would benefit the sole proprietors
specifically? Is the portal more accessible for them than the
ones operated by their lenders or not? And which of your
recommendations in your written testimony would be most helpful
for those sole proprietors or these micro businesses to access
forgiveness and relief?
Ms. WARD. Well, I think in cases where sole proprietors
have a lender that already has a portal or is already doing is
good job processing forgiveness, that is probably their best
place to keep going with the process. As you noted for sole
proprietors, independent contractors, self-employed, the rules
were pretty complex. And if you are a micro business, you are
your accounting department, you are your legal team, you are
your marketing team, and you are trying to run your business.
So having your lender--if your lender is working with you,
helping you understand these complex rules, as you are entering
your forgiveness information--we think that is better.
Now SBA's direct portal SBA does have people manning and
FAQs. But the nitty-gritty and details, especially for the
smallest borrowers, we still think that is pretty complicated.
And I still think the lender should be helping their borrower
as they enter it, so there is not a lot of back and forth
afterwards. We just think that is a smoother process, and
hopefully, we will speed forgiveness for these smallest
borrowers, too.
Ms. CHU. Thank you.
I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Minnesota, Mr. Stauber.
Mr. STAUBER. Thank you, Madam Chair. And thank you, Ranking
Member Luetkemeyer, for holding this hearing. It is very
important. And I will just say that one of the--I have really,
really strong concerns about the leadership at the SBA under
Administrator Guzman. I can tell you that when our small
businesses get information stating that they should or better
opt in, otherwise they are going to be subject to audits, et
cetera, that is the heavy hand of the government that I will
fight against tooth and nail. I know many of us on both sides
of the aisle, that is not how we treat our small businesses
that just coming out of COVID, just struggling to make it. And,
so, I will just say that first, we can't rule, or have SBA and
this administrator rule with a heavy hand.
And I wanted to say, earlier we talked about the PPP and
some banking, my comment is our local lending institutions did
a tremendous job with very little information upon the
distribution of the PPP loans. With very little information,
they did it in a quick way. But I just want to publicly thank
our lending institutions that helped so many businesses stay
afloat and helped people keep their doors open during the COVID
crisis.
I will also say that Administrator Guzman who was in our
great State of Minnesota at an event, and her partisanship
showed very well. Myself and Congressman Hagedorn, we are both
Members of this committee, weren't invited by her or any of her
staff. And I will say that my staff, both in the district and
in Washington, D.C. have been very, very concerned with the
lack of effort and the lack of response that Administrator
Guzman and her staff have given to us when we have requested
information. Either they are late, slow or no response. And
that is just simply unacceptable and the partisanship on her
end must stop. Her actions speak loud and clear. I should say
her partisan actions speak loud and clear.
So my question, Mr. Fisher, what has communication from the
SBA been like for the lenders? Has guidance been clear,
especially as it relates to forgiveness? And have you had
difficulty getting answers to any of your questions? Mr.
Fisher.
Mr. FISHER. It has been problematic throughout the whole
process. And I don't want to--I mean, SBA did a good job
building the system, as Ms. Ward said on the fly. We were
basically flying from New York to L.A. building the plane as we
were going. So I congratulate SBA on their efforts to put this
all together.
But it has been problematic getting answers from SBA. And
that is why we have always felt it is important to be that
buffer between the customer and SBA, because we can--we have
relationships with people at SBA. And even having those
relationships, it has been difficult to get clarity and answers
on complicated questions.
Mr. STAUBER. Thank you very much for that answer.
And are you concerned with new SBA direct forgiveness
portal? And if you are, when would you instead like to see
moving forward? And how might Congress help?
Mr. FISHER. I am not concerned with the portal. I think as
far as having that portal, I think it is a great option for
maybe some banks or other institutions that don't have a
forgiveness method. But I think, don't force people's hand into
utilizing the portal. I think having those relationships with
the borrowers is really, I think--you know, we create that
buffer and we can help with those complicated questions. And I
think even Ms. Ward alluded to the fact that some of our
smaller borrowers--I mean, our smallest loan was $430, but some
of those are some of the more complicated questions that arise.
And so, if we can help answer those questions based on
relationships we have had for 40 years, that is what we try and
do.
Mr. STAUBER. Mr. Fisher, I appreciate those answers. And
you are one of the institutions that helped keep our small
businesses afloat. You know, as well as I do, 16, 17 months ago
you didn't have the answers, and we didn't either, and so we
were working through it. And our lending institutions across
this nation deserve so much credit for helping us out, and
helping get that capital where it was needed in a short period
of time.
So with that, as we move forward here, I think that we
ought to make sure that--we always talk about the economic
drivers in our communities are our small businesses. And we
need to take care of our small businesses. As Mr. Fisher said,
that--know the customer, that relationship building is
extremely important to--having been in small business for 31
years, I understand that relationship with the banking and the
bankers and the institutions are incredibly important.
So with that, Madam Chair, I will yield back. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Pennsylvania, Mr.
Evans, for 5 minutes.
Mr. EVANS. Thank you, Madam Chair.
I understand--Ms. Ward, I understand your CDC works with
many borrowers who may require extra assistance when applying
for PPP loans. What kind of challenges are these borrowers
facing during the forgiveness stage?
Ms. WARD. Thank you. The biggest challenges we are seeing
for our borrowers during forgiveness are borrowers who
misunderstood the rules because they were changing rapidly at
the time, and made good faith errors in calculating their loan
amount. Borrowers were responsible for calculating their own
loan amount and determining their own eligibility. And, so, we
are seeing businesses that are--you know, they have spent these
funds on their business with the understanding that this would
be a grant. They made choices as to how they would keep
employees staffed and paid based on the understanding that this
was going to be a grant. You know, some tell us they wouldn't
have taken it if they had known they would have to pay it back,
because the last thing they need in an economic crisis is
additional debt.
So, we really strongly feel that these smallest businesses
especially that are suffering from good faith errors, that they
be allowed the forgiveness that was intended, that they relied
on. We also think for businesses in this size range, these
micro-businesses, loans up to about $25,000, by and large,
especially for one-person businesses--they would qualify for
full forgiveness. And having them go through the paperwork
burden of applying for a separate application for a business
that small is a significant burden, and we think automatic
forgiveness for those loans would be appropriate. We absolutely
do not think that SBA should stop investigating fraud, and
doing automatic forgiveness would not remove SBA's ability to
investigate red flags, and fraud, and go after anyone who has
lied about having a business or created false documents to try
and bump up their loan amount, those should be prosecuted. But
giving automatic forgiveness and taking this extra burden off
the smallest businesses would not prevent SBA from
investigating those cases.
Mr. EVANS. Let me follow up. What options exist for
borrowers who PPP lending is not being responsive to
forgiveness requests? What options would you say?
Ms. WARD. So I think SBA should absolutely be monitoring
lenders to make sure that they are processing forgiveness
applications within a reasonable timeframe. Borrowers should
not be left--the worst thing in the world for a small business
is uncertainty. And if they are stuck not being able to apply
for months on end, or they are under review for months on end
at SBA, that uncertainty is keeping those borrowers from
knowing whether they will be forgiven, whether they have funds
that they can spend to invest in new employees, to expand in
their communities. If they don't know yet if they are going to
be forgiven, they cannot make those investments.
It is critical that SBA focus its review on the larger and
higher-risk issues when they are doing their manual reviews.
Work on those so that those, too, can be processed more
quickly, so that borrowers that applied in good faith are not
penalized.
For the smaller loans, the SBA has a series now of red
flags, things that flag fraud for them that can help them go
back and look at those small loans that need SBA review.
Mr. EVANS. I thank you.
I yield back, Madam Chair. Thank you very much for this
hearing and this opportunity, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Pennsylvania, Mr.
Meuser.
Mr. MEUSER. Thank you, Madam Chair Velazquez, and thank
you, Ranking Member Luetkemeyer, that you to our testifiers.
So, certainly, the PPP, I think we virtually all agree,
saved livelihoods. It worked out well, certainly from my
district throughout Pennsylvania, and the SBA staff in
Pennsylvania was very helpful along the way. As a matter of
fact, taking calls at 7:00 a.m. and sometimes 11:00 p.m. for a
number of months there. And the SBA should be an advocate, I
think, almost by definition, for small business. So the PPP was
successful because it was created by the Trump administration
Treasury Department, but was driven and administrated by the
private sector, with the support of the SBA. So, you know,
public-private partnership, if you will. And it certainly
worked out well.
Now, the EIDL loans, and I know that is a challenging
subject to bring up was a very different story, and was, in
fact, run exclusively by the SBA. So the SBA is serving as an
advocate for small business. Wouldn't, then, the SBA have
checked with the community banks beforehand before sending out
such a letter? And basically mandating and strongly encouraging
the use of this direct forgiveness portal?
Mr. Fisher, were you or any of the community bank
associations advised or asked for their input on the
requirement to use a direct forgiveness portal?
Mr. FISHER. No, we were not advised that this was going to
be mandatory or pushed down on the banks. I mean, forgiveness
has been going on since September of last year.
Mr. MEUSER. Right, yeah. And this email was just received
just this Monday morning, correct?
Mr. FISHER. Correct.
Mr. MEUSER. And did they explain at all why it was so
important, that even though as we discussed, minimal fraud and
problems, why this portal would be would be so necessary? Did
they go over that with you?
Mr. FISHER. They have not, no.
Mr. MEUSER. And the letter, the email that came out for the
direct forgiveness stating that many banks--it seemed that it
was many, were managing their accounting and financials through
2022 as part of a better accounting plan for themselves. Is
that something that has been discussed, or you think is a
widespread issue?
Mr. FISHER. Not with the community banks that I know. We
all want to get those loans off of our books and get the loans
forgiven for our customers. That has been our plan since day 1.
This was always deemed a short-term solution to help or small
businesses customers and help our communities survive.
Mr. MEUSER. Right. And all of my community banks throughout
my district, same thing. I mean, the needs of their customers
certainly outweigh some, perhaps, improvement of accounting for
2022.
So, back to this email. You know, just looking at it here,
the audits, as you quoted, SBA warned avoid, that wasn't in the
letter, but avoid lender audits--to avoid lender audits, we
encourage the direct forgiveness portal being utilized. Maybe I
am paraphrasing. It wasn't really written like a small business
advocate. What was your thought? What were you and your
colleague's thoughts when you received that language?
Mr. FISHER. We hoped to have all of our loans forgiven from
both rounds before the end of the year. So personally, I am not
overly concerned about being audited. They are not going to
find anything if they come in. But, I mean, nobody wants to get
audited by the SBA. So I mean, it didn't sit well with me,
especially because we had been working so hard on forgiveness
for our customers.
Mr. MEUSER. Yeah. Okay. No, I would agree if I think if I
was sitting in your seat.
I just think it is clear that the portal for direct
forgiveness must remain an option with no perceived or implied
penalties whatsoever, and certainly, we need to maintain a high
level of integrity with the program.
With that, Madam Chair, I yield back. Thank you.
Chairwoman VELAZQUEZ. The gentlemen yields back.
I don't think there are any other Members. Yes.
Ms. HOULAHAN. Madam Chair, I am here, Rep Houlahan.
Voice. Represent Tenney as well.
Chairwoman VELAZQUEZ. Yes. I can see you.
I recognize the gentlelady from Pennsylvania, Ms. Houlahan
for 5 minutes for questions.
Ms. HOULAHAN. Thank you, Madam Chair. And thank you very
much to all of you for joining us today.
I have just a couple of really quick questions, and my
first one is to Ms. Ward. I understand that in your written
testimony, you shared that there is a need to alleviate
unnecessary paperwork burdens for the smallest of businesses.
And you shared that the need should be expanded to simplify
forgiveness applications for loans all the way up to and
including 350K. Would you be able to speak a little bit more in
this forum in depth about that, and why we might need to expand
the simplified forgiveness applications for PPP from what
exists now at 150K to 350K?
Ms. WARD. Thank you. I think anything we can do to simplify
the process for more small businesses is useful and helpful. I
think expanding that up to 350 poses minimal additional risk to
program funds, those loans are still reviewable, but it lessens
the burden of submitting documentation, makes it more efficient
because then all of that documentation does not have to be
reviewed, and gone through, and back and forth with the lender
and the borrower before it is even submitted to SBA. SBA
maintains still the right on all loans to ask for underlying
documentation if they choose. But bumping that up, we think,
would just make this process easier for more businesses. We
think that is appropriate. Automatic--sorry, go ahead.
Ms. HOULAHAN. Do you have an appreciation, or an estimate,
for how many of the total number of loans would then represent
with 350K and below?
Ms. WARD. I think--I shouldn't speak to one, because I
probably don't have the right number in my head--I think if you
go up to the 350,000 level, you are getting over 90 percent of
our PPP loans that have been made through that more streamlined
process. And that allows SBA's resources and lenders' resources
to focus on the larger and higher-risk loans and make sure that
those documentation, supporting invoices, supporting payroll
documentation, is reviewed to protect these loans.
Ms. HOULAHAN. Thank you so much, Ms. Ward.
My final question was for Ms. Bilonick. I was also hoping
that you would be able to elaborate and articulate on how the
SBA can continue to improve the forgiveness process for those
underserved borrowers, those specifically who may not have
attorneys or accountants on staff to help them through that
process. What else can the SBA be doing to be able to improve
that process for them?
Ms. BILONICK. Well, if I could give my wish, I would say
that if there could be support for those organizations that are
working with the small businesses and funneling them through
the portal, I think most CDFIs and other small businesses using
nonprofits in the communities that my organization represents,
they are not just giving folks sort of, Here is the website for
the portal. They are really walking through and providing hand-
in-hand support to the borrowers to, you know, understand what
is being asked, understand--you know, upload documents, all of
that.
So it is really not a hands-free kind of situation. So I
think wherever resources could be put to support that extra
labor, I think everyone has rolled up their sleeves during the
pandemic to just do whatever it is that is necessary, but a lot
of this work is not accounted for. And, you know, it is just
kind of being provided without resources to back it up. So if
there were anything like that.
And then just to repeat my prior point, you know, the
district offices being a lifeline for community-based
organizations to ask questions, to funnel any doubts, it is
just very, very helpful to have that direct person that is
answering a phone, rather than looking at FAQs, because each
loan is so particular. I think all of our lenders on the call
would agree. And, so, it is really challenging to have
straightforward rules that apply to every deal.
And then, just really quickly, I just wanted to respond to
the thing about the 350--raising it up to 350 would bring it up
to 94.2 percent of all the PPP loans. So it is just an increase
an increase, a bump-up of 7.7 percent.
Ms. HOULAHAN. Thank you. I really approach that that.
And with that, I yield back. Madam Chair.
Chairwoman VELAZQUEZ. Thank you.
The gentlelady yields back.
Now we recognize the gentlelady from New York, Ms. Tenney,
for 5 minutes for questions.
Ms. TENNEY. Thank you, Madam Chair. And also thank you to
Ranking Member Luetkemeyer. I just really appreciate your
holding this important hearing on PPP. It has been a lifesaver
for my community. A small business community is what drives the
economy in my region. And we are so grateful that we were able
to have that program, and how effectively it was done through
our small community banks and credit unions. And I know that
working with our credit unions and banks, as a former bank
attorney, and also as a small business owner, how critically
important it was for us to have access to these unfortunately
dwindling number of community banks and credit unions that we
can build our relationships with. And that is why I am very
concerned about the letter that was received, somewhat
threatening letter from SBA, to--the email, I should say, from
SBA to lenders to avoid lender audits, encouraging them to move
into the direct forgiveness program, instead of working through
their own institution, where they have originated the loan,
where they have actually had the community bank. They have had
the community relationship with these particular lenders in a
business community where they know what the risks are, they
know what the community needs. And they also understand the
businesses in the community.
And my first question I would like to direct to Mr. Fisher.
And I am so grateful that he is on, you know, a frequent guest
and great expert on this issue. Also, our president of the
Independent Community Bankers Association, so congratulations
for that distinction as well. But, I know you have been asked
this, but I want you to give us a little bit more of the real
implications of this coercive letter, or email, that you
received from SBA about encouraging your business customers and
your businesses to move over to the SBA portal, as opposed to
using your bank and your system as the forgiveness site,
because I am concerned about some of the privacy concerns and
the liability of the bank in giving up that information. Could
you maybe address that, Mr. Fisher?
Mr. FISHER. Yeah, I am not sure about the liability issue,
but as far as just, you know, we have systems in place. We are
actively working with all of our PPP customers pursuing
forgiveness. We work with them. And back to one of the previous
questions, you know, I think the easiest way to have customers,
if they are having difficulty with PPP forgiveness, go to a
community bank. We will gladly help you walk through the
process. Even if it is not our loan, we will help figure it out
for you so----
But being coerced to have to work it through a direct
forgiveness portal with the SBA, I think that is problematic. I
mean, they are not going to get the same level of service that
they will get coming to my bank. I know that we know the
customer. We live here. We work here. We work with them. And
so, it is concerning that we are kind of being coerced to go
down that path of sending our customers directly to SBA without
having that interface that they can work through us and a get
the solution through us.
Ms. TENNEY. Yeah. And as fellow New Yorkers, I am always
concerned about when the government is interfering in these
relationships that banks have. And you describe so eloquently
the importance of character lending and community banking
relationships. And those have been vital to many in our
community who rely on those dwindling number of community
banks. But you provide such a great resource to so many,
whether it is a farmer, or another kind of small business
owner, restaurant, some of the not for-profit that you
described that you were doing PPP loans with. Those businesses
are vital. And you, as a Member of the community, understand
that. It is not like they call an 1-800 line. And for a
bureaucracy in Washington to interfere in that process, that
concerns me. And I think the efficiency that you pointed out
earlier in the PPP program of using our community lenders is
really--is worthy of commendation. That is a good move. And
also, less reliance on the bureaucrats in Washington, and more
reliance on people that are closer to our community. I really
appreciate those comments that you made. And I would also like
to echo the comments of my colleague, Mr. Stauber, on--my staff
and many of our constituents have come to us concerned about
the problems they have had with SBA. So to me the fact that we
have wonderful institutions, like community banks, community
credit unions, that serve customers so directly, I think that
is a huge win. And I just think it is a mistake that they are
using any kind of coercive tactic.
So I want to thank you for that. And thank you for also
indicating that in your testimony, that you have zero fraud and
100 percent forgiveness rate and you are working through every
one of these. So that is really important to know about the
accountability aspect of this as well.
I don't know how much time I have left, but I wanted to
just get a quick question to Ms. Payne about the credit union
aspect of this, and some of the direct consequences, or some of
the experiences you have had on the credit union side. If you
can quickly tell me that, because I think I am running out of
time.
Ms. PAYNE. Well, I would like to, then, quickly maybe,
share a direct quote from one of our Members who was recently
forgiven. And this is from an email. ``Hopefully, you are able
to hear our screams of delight. Thank you so much. This is an
enormous relief. Please let everyone there know how important
this is to us. Affinity's communication systems responsiveness
and empathy during really trying times was second to none. You
guys rock.''
That is a relationship. And that is the critical piece
here.
Ms. TENNEY. Yeah. Thank you so much. That is fantastic.
And I don't mean to disrespect there are many great people
that work for SBA, but who are on the ground with customers and
you are relationship building, you depend on these people and
they depend on you. And I think that the last thing we need is
Washington bureaucrats to interfere with that. And I do think
that this is a lit bit of mission creep for the SBA to move
away from their job of helping small businesses to get into a
banking relationship, and interfering in that important
relationship with our small businesses community. And I have
heard the same. I think this is a great program. And to end it,
interfering in that ability to forgive these loans, which was
intended as a grant program, as Mr. Fisher referred to in his
testimony, it would be a mistake. And I think that going down
the path of accountability, particularly with people like the
small business--small community banks, small community credit
unions, you have something at stake, you have skin in the game.
And I think that is why you are so good at doing this. And that
is why I think the program was so successful.
I want to thank all of the witnesses and everyone. This is
really important. I hope you will continue it work hard on
these issues and help our small business community. We are
really grateful to you.
And thank you very much, Madam Chair, and Ranking Member
Luetkemeyer. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we now recognizes the gentleman from Minnesota, Mr.
Phillips, for 5 minutes.
Mr. PHILLIPS. Thank you, Madam Chair. And greetings to my
colleagues and to our witnesses. Gratitude for you all being
with us.
My question is about the bank fees relative to the PPP
program. And the Washington Center for Equitable Growth
indicated that banks reaped about $18 billion in fees that were
associated with processing PPP loan applications. And I would
like to hear from you, whichever of our witnesses want to
begin, to help describe the bank fee structure that was
implemented through PPP to provide the incentives to issue the
loans, and whether you think that in part, at least, it
explains why some of the largest lenders were reluctant to push
forgiveness through using the SBA's direct forgiveness portal?
Any thoughts from any of our witnesses on that subject?
Ms. WARD. I am happy to take the first slab to try and
answer that. So first, I would say, I am not aware, and would
be surprised to see that there are lenders trying to delay the
process for purposes of when their fees are booked. I have not
heard that and that would surprise me. If that is happening,
SBA should be applying significant pressure on those lenders.
That would just be unacceptable.
The fee structure that was put in place, really, initially,
I think Congress made an effort to ensure that even the
smallest businesses had access to PPP, but because Congress
structured it with a larger percentage fee on the smallest
loans. Unfortunately, even a larger percentage fee on a $5,000
loan does not give the lender the reimbursement for the
resources they used to do that loan. So lenders that were able
to do large PPP loans were able to generate large enough fees
to offset their costs.
Lenders like community lenders, CDFIs, a lot of the lenders
that worked primarily with the smallest businesses and micro
businesses, probably did not receive enough fee income to cover
their costs, depending on the volume that they did. Self-Help
among CDFIs is a little unique in that we were able to work
with over 70 percent of our loans were to those smallest
borrowers, under $50,000. Our median loan size was just with
over $20,000. But we also, because we were helping some of the
nonprofits serving the community, we were helping some larger
employers keep their employees on staff. We were able to do
some of those larger loans to help offset costs.
But we had real concerns about the fee structure for
community lenders and CDFIs that were working almost
exclusively on those tiny loans, and Congress did address that
when it brought out the 2021 PPP----
Mr. PHILLIPS. Right.
Ms. WARD.--by putting in a minimum fee amount for those
lenders so they could cover costs.
Mr. PHILLIPS. I appreciate that.
Ms. Payne, Ms. Bilonick, any perspectives on the same
question you want to share?
Ms. PAYNE. I would like to add that going into this in the
environment that we were in with the pandemic, I don't know
that, for us, it was really member-based. We needed to help our
Members. The fee structure was basically secondary. We needed
to get through this, and we needed to get through it together,
and this is what we needed to do for our member base.
Mr. PHILLIPS. I appreciate that.
Before my time expires, I know that a number of borrowers
were contacted by their bank saying that they received more
than their allowable funding, and are responsible to pay it
back, of course, despite having, in many cases, used the money
for forgivable expenses. So at what stage do you think it would
have been appropriate for that to be communicated to borrowers
and by whom? Do you think it is the lender's job or the SBA?
Any thoughts on that subject?
Ms. PAYNE. I can jump in to try to answer that. I don't
know with the ever-evolving guidance and such what might have
been a good time. It is hard to say.
Mr. PHILLIPS. Yeah.
Ms. PAYNE. But I do think from the beginning, the message
to these borrowers was, if you use it the right way, you will
be forgiven. And I think that is the message that, you know,
that so many of us heard as the borrowers did.
Mr. PHILLIPS. Right.
Ms. PAYNE. This was temporary.
I think it depends for us, we are happy to give that
message when it does happen, if there was partial forgiveness
or something otherwise. We are happy to give that because we
have the relationship and can fully explain it to our borrowers
so that they understand, and then hopefully help them with any
other needs that they may have going forward with that.
Mr. PHILLIPS. Hear, hear.
With that, I yield back. And I thank you all again for
being with us today.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from New York, Mr.
Garbarino, for 5 minutes.
Mr. GARBARINO. Thank you, Chairwoman. And thank you to the
Ranking Member for having this hearing as well. Thank you to
the witnesses that are here today. I have appreciated your
testimony so far.
I want to start with Mr. Fisher, because it is sort of a
follow up to what him and Ms. Tenney were talking about and how
you have been dealing with customers looking for forgiveness
and your Members have dealt with them all the way up through
the processing application and whatnot. Have you come across
any small business customers that have not opted to seek
forgiveness?
Mr. FISHER. We have had some customers that are slow to
seek forgiveness. But, you know, no, they all want to get
forgiven. It is just, some are quicker to try and apply for it
than others.
Mr. GARBARINO. Is that the same instance for you, too, as
well, Ms. Payne, with your Members?
Ms. PAYNE. We have seen some, not many at all. Several of
our borrowers have opted not to apply for forgiveness. The only
input that we have heard from them is that they felt that they
did not spend the money fully in line with the PPP guidance,
and that is all I can really say on that.
Mr. GARBARINO. They don't think they qualify for
forgiveness? Okay. All right. Thank you.
Mr. Fisher, back to you. How much staff have you dedicated
to PPP, as well as how much staff do you have dedicated working
on PPP forgiveness?
Mr. FISHER. Initially it was kind of all hands on deck. We
probably--I mean, I have 100 FTEs at the bank, a little less
than that. But we probably had 20 people that were working
around the clock, weekends, trying to get PPP applications into
the SBA. The forgiveness phase we have automated some of that.
So we are really using about three people, two to three people
to handle the forgiveness phase. And it has been very efficient
and pretty effective for us.
Mr. GARBARINO. And Ms. Payne, your organization?
Ms. PAYNE. It is going to sound very similar. It was all
hands on deck as well. And we actually brought on three
temporary employees to help us through the PPP forgiveness
process. And it has been working very well for us. And we have
automated our platform as well.
Mr. GARBARINO. Okay. And finally, I guess what--PPP was big
in getting funding out the door when it was first going. That
was a big question to employers, how they are going to keep
open and PPP was a big help. For many of the witnesses, Ms.
Payne, Mr. Fisher, anyone, what are you hearing specifically
now? Now that the PPP programs--what concerns are you hearing
from small businesses now?
Mr. FISHER. I think the big concern right now is what is
going to happen with this next wave, if it is going to lead to
shutdowns. We are seeing mask mandates for schools and things
like that. So I still think there is a lot of uncertainty with
business, which is always problematic, so.
Mr. GARBARINO. Uncertainty over the regulations on how to
handle it if there is another--I don't think there will be, but
if there is another shutdown?
Mr. FISHER. Correct. Yeah.
Ms. BILONICK. I was just going to add that from our
perspective there is lot concern around workforce. So there is
just not available workforce for a lot of industries that were
hardest hit, and that are now trying to reopen and reboot. And
that is just something that is coming up very frequently.
Mr. GARBARINO. I have heard that a lot from every industry
I think, from construction, to restaurants, manufacturing, to
retail. Everybody is having trouble right now finding
workforce. But as for programs, like PPP, is there something we
could do better next time, you know, if there is another
shutdown? Like, what should we address on how this program ran
out, or how we ran this program compared to what we should have
done? Like, what can we do better? For anybody?
Ms. WARD. I would say we at least have a template now, even
if this exact same program was put in place, there is lot more
clarity. That is a huge improvement. One of the biggest
challenges was that almost daily, changes came through during
the duration of this program, and it really made it impossible
for borrowers to know whether they were eligible or how much
they were eligible for. So that would be an improvement.
The funds could be--there could be other ways to deliver
these funds to borrowers. I think, by and large, banks, big
banks, community banks, CDFIs, even fintechs getting in got
these funds out to a lot more borrowers, and allowed these
funds to be funneled through a lot of sources so that more
money could get out the door as quickly as possible to these
businesses that needed it to survive.
Having clarity in the rules from the beginning, and having
clear steps for forgiveness, delivering on that promise, taking
away that uncertainty as to whether you are going to get these
funds forgiven, or whether you suddenly have unexpected debt
after you kept your staff on, those are the things that I think
could be addressed to help more businesses if we, you know,
hopefully don't, but if we ever had to go through something
like this again.
Mr. GARBARINO. Thank you. My time is up. So I yield back.
Thank you, Chairwoman.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from California, Mrs. Kim
for 5 minutes.
Ms. YOUNG KIM. Thank you. Thank you, Chairwoman and Ranking
Member. I also want to thank the witnesses for being with us
today.
You have heard a lot from my colleagues about the PPP has
been tremendous assistance in allowing small business owners.
And in my district also, it has been a lifeline for them to
weather the economic downturn caused by the COVID-19 pandemic
and unprecedented lockdowns.
We are talking about now the next phase of PPP forgiveness,
you know. The massive effort of distributing close to 12
million PPP loans and sustaining close to 50 million jobs could
not have been possible without our partners, like the banks and
credit unions. So I want to thank them and the partnership they
have had with you guys.
But I was troubled to hear SBA was threatening--excuse me.
I was really troubled to hear that SBA was threatening lenders
to opt into the direct forgiveness program to avoid audits by
the Office of Credit Risk Management. SBA later clarified that
audits would focus on lenders that have yet to accept
forgiveness for 2021 PPP borrowers, or those that are not
actively reaching out, the damage has been done. And SBA must
be careful not to vilify lenders moving forward.
And I also must stress that whether a bank or any other
lending institution, obscene or not with the SBA's forgiveness
quota has no bearing a borrower's opportunity to get their PPP
loan forgiven. You know, many banks and lenders have already
set up their own forgiveness platforms that are complementary
to SBA and having really highly efficient.
So let me ask you, Mr. Fisher, I agree with your testimony
that the SBA should not force lenders to opt into the direct
forgiveness portal. And with the high number of review requests
from the SBA which requires lenders to put resources aside to
provide documentation, what should we expect if SBA decides to
proceed with audit on lenders on top of all these review
requests? And how is that going to divert your attention in
serving your customers properly?
Mr. FISHER. It just diverts resources away from my mission
of serving our local community and our customers in helping
small business. If I am trying to provide documents and trying
to deal with auditors from SBA, it just becomes problematic for
us.
Ms. YOUNG KIM. Sure.
You know, Mr. Fisher, you also said in your testimony, you
mention SBA's lending programs like the 7(a) and 504, they rely
on bank underwriting and the expertise that lenders bring to
the table. So can you explain to our committee what would
change if SBA moved in the direction of direct-to-borrower
programs at the SBA?
Mr. FISHER. I just--obviously, if you leave the bank out of
it, you are subject to potentially more fraud. I think that has
been brought up that the EIDL advances saw substantially more
fraud in direct loans to SBA than the bank loans. So, I think
looking at it from the standpoint of trying to reduce fraud, I
think utilize your existing framework of community banks and
banks to continue that lending through the S-7(a) program and
504 programs, and even PPP was very successful, and I think
limited fraud by utilizing the banking framework that we have.
Ms. YOUNG KIM. Well, thank you very much. I mean, I think
the biggest concern that we have is the impact. And we want to
make sure there was a prevention of waste, fraud, and abuse
with those programs.
One more question. And I would like to direct this to Ms.
Payne. Why do you believe that forgiveness review process by
the SBA is challenging and time consuming? Are there certain
steps that add extra days to the review?
Ms. PAYNE. When a loan goes on to--into loan review, it is
a time-consuming process because it is not typically that we
have that the lender has a direct communication with the SBA
representative. It is basically an email is sent out, sometimes
can be fairly vague, and then we are asking for additional
documentation. Sometimes it is already been uploaded and they
are repeating ourselves, sometimes we have to then reach out to
the borrowers to get additional information, not always
understanding what that is going to go do for the loan itself,
in terms of the forgiveness review. So it does add days. It
also add frustration, and confusion, and stress for the
borrower in terms for the fear about why am I under review.
So there are a lot of factors. It does add time. And it can
add other things, stress that a small-business owner does not
need at this time.
Ms. YOUNG KIM. I have one other question to ask, but I
think my time is up so I will yield my time back. Thank you.
Chairwoman VELAZQUEZ. The gentlelady yields back. Now we
recognize the gentlelady from Texas, Ms. Van Duyne.
Ms. VAN DUYNE. Thank you very much, Chairwoman Velazquez
and Ranking Member Luetkemeyer for holding this hearing today.
As the driving force behind our economy, you know, an
employer of nearly half of all American workers, the success of
small businesses is critical to each of our communities. And
this is no more apparent than during the pandemic. While
government shutdowns forced many businesses closed, the
Paycheck Protection Program delivered the emergency capital
that small businesses needed to be able to keep their doors
open. After providing almost $1 trillion to small businesses,
we are finally nearing completion of the program.
As this massive relief program shuts down, we must continue
to push for more rigorous oversight to protect American
taxpayers.
I want to echo Congressman Hagedorn's request and express
my disappointment that we are discussing complex policies yet
again without an SBA representative present. There are
questions that Members of this committee have that can only be
answered by those actually running the program. So I hope we
can have someone from SBA in front of the committee very, very
soon.
That being said, I want to thank the witnesses that we do
have here today.
Mr. Fisher, I appreciate all the work that you do in
upstate New York. I think I actually used to have an account
with your bank when I was up in college in Ithaca. So I know it
is raining there today, but now is when I want to be there,
because I am in Dallas, Texas, and it has been 100 degrees here
today. So enjoy your summers and your falls because winter is
coming soon.
But I do have a question for you. Despite many
circumstantial setbacks and concerning amounts of fraud, the
PPP program successfully kept small businesses afloat during
the pandemic. So as we look ahead to preparing for the next
major disaster, these problems are not unique to just PPP. And
I know Congressman Garbarino had also asked a similar question.
I am going to change it a little bit. How can we improve the
PPP model to disperse the quickest aid, but also minimize
fraud?
Mr. FISHER. I guess I would suggest not trying to go direct
to the borrower. I think utilizing the network of banks that
participated, utilizing banks that have a long history of 7(a)
lending is definitely probably the way to go, because we have
relationships with those businesses. We know the businesses,
because it is down the street. I drive by it every day, versus
somebody who is just, you know, seeing it in application,
either on paper or virtually, trying to make that decision. I
think we can be a great mutual aid to help get those dollars
out and also curb fraud.
Ms. VAN DUYNE. That is good to know.
Ms. Bilonick, in your testimony, you state that in 2019,
before the pandemic hit, that Latino-owned businesses had hit a
record-breaking strive with their average annual revenue
increasing 10 percent to over $525,000 per year. This is
impressive, and it is the exact type of growth strategy I think
that we are looking for in the business environment and we need
to get back to that.
What would you attribute that success to back in 2019?
Ms. BILONICK. I think the success was reflecting the
scaling of Latino-owned small businesses, so businesses that
may have started 5 to 10 years ago that were going to the next
level, expanding, adding additional locations, adding
additional personnel. And, unfortunately, the pandemic is a
setback, but I do think that we can harness that, you know,
sort of growth mentality and perseverance moving forward, and
it hopefully will just be a hiccup in the story of our
entrepreneurship story.
Ms. VAN DUYNE. Were there any particular policies that you
think that helped back in 2019 that we should either try to
strengthen or, you know, bring back?
Ms. BILONICK. I don't know that I would point to a
particular policy. I am not sure. I think--I really do think it
was sort of was just maturity of the businesses that had taken
off at that point. But I am open to suggestions of what
policies you may be referring to.
Ms. VAN DUYNE. Well, I don't know. I mean, maybe tax cuts.
I mean, were you looking at any other tax cuts in the Tax Cuts
and Jobs Act, for example? Did that strengthen? Did that help?
I mean, I know that right now we have got from the Biden
administration a number of financial policies that are coming
down that are talking about increasing taxes, you know, gut
inflation, so in backing away on some of the policies that I
think really helped grow the economy and were very positive,
beneficial to small businesses, and I am just wondering if you
are seeing the same thing.
Ms. BILONICK. I don't know that I would attribute it to
that. I would say that I am not opposed to taxing those larger
businesses. I think a business that is making under a million
dollars is certainly not, you know, going to be targeted in
that segment.
Ms. VAN DUYNE. No. But I am talking about specifically
small businesses. Right?
Ms. BILONICK. Well, these are, I guess--would be probably a
threat closer as a microbusiness in the $250 to $500 thousand
range.
Ms. VAN DUYNE. Well, I thank you.
I yield back my time. Thank you.
Chairwoman VELAZQUEZ. The gentlelady yields.
Now we recognize the gentleman from Florida Mr. Donalds for
5 minutes.
Mr. DONALDS. Thank you, Madam Chair, and thank you to the
Ranking Member for holding this hearing.
I have got to tell you, I think SBA getting involved, as
involved as they are trying to be with this forgiveness process
and, frankly, you know, threatening community banks from doing
what they kind of already been said to do I think is
outrageous. It is outrageously wrong.
You know, in a prior life, I was a credit underwriter at a
community bank. I had to deal with SBA when we were doing joint
credit with them. And, to be frank, SBA would be late to the
table often with respect to their lending decisions. We already
knew it was good credit. It just took forever to deal with SBA.
So for them to try and come in now and, in some respects,
completely take over the forgiveness process, to me it just
doesn't make much sense at all.
So, I guess, my question, my first question is to Mr.
Fisher. Mr. Fisher, you are going through the process of
forgiveness. What kind of data are you actually looking at in
order to clear [cut out] forgiveness?
Mr. FISHER. We just make sure that it is a valid, you know,
loan. We validated all the customers at the front end, so the
forgiveness, we just have to ensure that they have all of the
documentation required by SBA, and it goes through--we have an
automated system that it goes through and submits directly to
SBA, and we typically--right now we are getting forgiveness
back very quickly from SBA, so it is a pretty smooth process
for us right now.
Mr. DONALDS. Okay. And, Ms. Ward, my question for you is,
what different or what value added is SBA bringing to the
forgiveness process as to why they should be involved in it?
Ms. WARD. Well, I think the value SBA is adding is, in
creating this Direct Forgiveness Portal, they are giving an
easier, more efficient online access for some PPP borrowers
that may not be getting that from their lenders, and in that
case that is incredibly valuable. I am really happy to see that
they have created the portal to fill that gap.
I agree, though, for lenders that have already created
their portal or lenders that are efficiently processing PPP
forgiveness, they should be allowed to keep using their own
systems. I think SBA's direct portal should expand access to
forgiveness and not limit different ways that borrowers can get
forgiven.
I have worked as an SBA lender for over 15 years. I have
worked with SBA on micro loans, 7(a) loans, 504 loans, and now
PPP loans, and SBA works best, in my opinion, when it works in
partnership with the lenders. Each has a role, and SBA can have
drastically more impact working through the lending community.
That needs to be expanded, more community lenders, credit
unions, CDFIs, mission-oriented lenders that are making sure to
hit underserved borrowers, but that is where I think SBA
provides an incredible and unique service and much needed
loans. These SBA loans of all types are part of why the U.S.
has such a vibrant small business economy.
Mr. DONALDS. Ms. Ward, as a follow-up to that, I mean, like
I say, somebody who has been in the community, actually done
credit underwriting, with the amount of loans in the system,
how would SBA actually go about dealing with loans that there
might be early indications are fraudulent or that dollars were
spent and maybe not in line with the PPP program and, as such,
those dollars--a portion of those dollars or those dollars
overall would not be forgivable, how would SBA deal with that?
Ms. WARD. So what we've seen that process include since the
program got rolled out, I think initially in the speed to get
these dollars out, a lot of the normal safeguards----
Mr. DONALDS. No. Ms. Ward, I have to reclaim my time real
quick. I understand what you are saying about what happened on
loans from now going forward.
What, frankly, special mechanism is SBA going to do if they
see early warnings that there was, not so much even just
fraudulent, but a misapplication of funds where those funds are
now no longer subject to forgiveness under the various--and I
know there have been a couple iterations of PPP. But what if
those dollars were spent and none of those iterations that were
allowable for forgiveness, what is SBA going to do? What would
it ordinarily do to ensure those dollars are repaid to the
taxpayer? [Audio cut out on his question]
Ms. WARD. So all of these go through SBA for the final
determination. The bank, the community bank, or the lender
submits our recommendation per SBA based on does this loan
qualify for forgiveness or partial forgiveness, and then SBA
bases its forgiveness on that. SBA also has the right to review
those and ask for additional documentation.
And so they will keep doing that same thing. They will
continue to review and make sure that forgiveness is
appropriate. If the funds were not spent for the intended
purposes, the business should be paying them back. The use was
to keep your business operating and keep your staff employed.
Businesses that didn't do that knew going in and should be held
accountable for paying that back.
Mr. DONALDS. Well, Ms. Ward, thank you for that.
I know I am over my time. Madam Chairwoman, thank you so
much more the indulgence, and I yield back.
Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
Let me thank all of the witnesses for being here today.
Your testimony has shown the progress we have made in forgiving
PPP loans and also the challenges that small businesses still
have----
Mr. LUETKEMEYER. Madam Chair, we have got one more
witness--one more Member. Mr. Fitzgerald from Wisconsin is
still on.
Chairwoman VELAZQUEZ. Well, he has his camera off and----
Mr. LUETKEMEYER. No. He is on.
Chairwoman VELAZQUEZ.--he has had his camera off throughout
the hearing.
Mr. FITZGERALD. Madam Chair, I am not sure if I--I just
have a quick one if I could sneak in.
Chairwoman VELAZQUEZ. Sure. But we have always said that
while you are in a hearing to please to keep the video on. So,
sir, you are recognized now for 5 minutes.
Mr. FITZGERALD. All right. And thank you, thank you.
Just real quick, and I don't want to be redundant. I know
that the hearing has gone on.
So to Mr. Fisher and probably to Ms. Payne, there is kind
of this--these stories that have been swirling for some time
now that there was kind of this cottage industry that was
created basically because PPP loans were available. There were
accounting firms, as well as law firms, that were starting to
market, if you will--and I am trying to keep this at a 30,000-
foot level--market the idea that, hey, if you want to apply for
a PPP loan, don't worry about it, we will take care of the
paperwork. This is what you are eligible for. And then once the
PPP loan was granted, then on the back end, you know, there
would be legal fees that were charged for some of these or,
certainly with some of the CPA firms, you know, there was
billings that were done on the back end.
And I bring this up--and like I said, I am trying to keep
this--I am not necessarily making the accusation, but it is out
there. It is very much out there. And I would just say, this is
one of the problems I think with just loan forgiveness is you,
once again, take down one of the hurdles that, you know,
otherwise legitimate businesses would look at and say, well,
wait a minute, if I have got to pay this back in the end, no, I
am not going to take that $25,000 loan. I am not going to take
it because it is going to be a burden on me later. But if I
know that it is going to be forgiven anyways, sure, what the
heck, you know, let's make this arrangement now with a law firm
or CPA firm. And, you know, suddenly you find yourself in a bad
spot.
And I am just worried that this cottage industry was
created and that, you know, if we don't try and keep this in
check, it could go wild. And I wonder if you have any comments
on that, if you saw any of this type of practice going on. You
know, in my mind, you know, it sounds like criminal activity
but very hard to define and very hard to delve out.
Mr. Fisher and Ms. Payne, I would ask either one of you who
had direct involvement with these loans to just--have you seen
anything like this?
Mr. FISHER. You know, we did have, you know, accounting
firms and lawyers that were working with customers, but they
were all customers that were known to us. We actually brought
in I think 40 percent of the first round of SBA--or PPP loans
were new customers to our bank; but most of those were not
necessarily referrals from attorneys or accounting firms. They
were, you know, the borrowers coming to us directly. I think
there was--we had a couple of accounting firms that maybe
referred a deal over, and I think they thought they were
entitled to some of the fee that was being generated from the
PPP loan, but we didn't have any type of an agreement signed
with them for, you know, sharing those fees.
So we didn't really see anything that you are talking about
as far as fraudulent or, you know, the type of activity that I
think you are talking about, I haven't seen it, so, I don't
know----
Ms. PAYNE. And I would add, we really didn't see any of
that, and we didn't have anything from accountants or anything
of that nature. We talked more to accountants more on the
forgiveness end of things than the early stages because of the
complexity sometimes of the documentation that they had to
provide for forgiveness. But we didn't really see anything of
what you are speaking to. We didn't have any familiarity with
that.
Mr. FITZGERALD. Ms. Ward, are you aware of anything along
those lines?
Ms. WARD. We really didn't see that in our PPP lending
either. We saw a lot of technical assistance being provided by
accounting firms and small business technical assistance
providers. Third-party payroll processing companies we saw step
up and provide reports for their customers to help them
calculate the loan amount. We saw a lot of different industries
really doing what I think all of you and all of we and, you
know, all of these businesses did, it was all hands on deck.
I am--I suspect you are right that there are organizations
that took advantage of that fear and that desperation, and to
the extent they can be found out and held accountable for that,
I would applaud that; but most of what we saw, fortunately, was
organizations trying very hard to help the businesses and the
nonprofits in their communities keep their doors open.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
Mr. FITZGERALD. Madam Chair, I am just worried--yes, Madam
Chair, I think this is something we have got to be aware of,
and I appreciate the time.
Chairwoman VELAZQUEZ. Thank you.
Again, thank you to all of our witnesses for being here
today. As I mentioned before, your testimony has shown the
progress we have made in forgiving PPP loans and also the
challenges that small businesses still face.
While the small business economy has made tremendous
progress toward recovery over the past 17 months, we are
entering another precarious state with the spread of the Delta
variant. For small businesses that struggled for over a year,
even minor setbacks can instill monumental trouble. That is why
our committee must work to ensure that small businesses can
achieve maximum loan forgiveness.
This hearing has provided significant insight into the
obstacles that PPP borrowers still face. I look forward to
working as a committee to achieve policy solutions that ensure
entrepreneurs obtain the forgiveness they are entitled to.
I would ask unanimous consent that Members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
If there is no further business to come before the
committee, we are adjourned.
Thank you.
[Whereupon, at 3:15 p.m., the committee adjourned.]
A P P E N D I X
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