[House Hearing, 117 Congress] [From the U.S. Government Publishing Office] CATALYZING ECONOMIC GROWTH THROUGH SBA COMMUNITY-BASED LENDING ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTEENTH CONGRESS SECOND SESSION __________ HEARING HELD MARCH 29, 2022 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 117-051 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 47-180 PDF WASHINGTON : 2022 ----------------------------------------------------------------------------------- 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 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. Sharice Davids.............................................. 1 Hon. Dan Meuser.................................................. 2 WITNESSES Mr. Manny Flores, President and Chief Executive Officer, SomerCor, Chicago, IL.......................................... 4 Mr. Kerry Doi, President and Chief Executive Officer, Pacific Asian Consortium in Employment (PACE), Los Angeles, CA......... 6 Ms. Brooke Mirenda, President and Chief Executive Officer, Sunshine State Economic Development Corporation (SEDCO), Clearwater, FL................................................. 7 APPENDIX Prepared Statements: Mr. Manny Flores, President and Chief Executive Officer, SomerCor, Chicago, IL...................................... 19 Mr. Kerry Doi, President and Chief Executive Officer, Pacific Asian Consortium in Employment (PACE), Los Angeles, CA..... 28 Ms. Brooke Mirenda, President and Chief Executive Officer, Sunshine State Economic Development Corporation (SEDCO), Clearwater, FL............................................. 39 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: CUNA - Credit Union National Association..................... 47 NADCO - National Association of Development Companies........ 49 CATALYZING ECONOMIC GROWTH THROUGH SBA COMMUNITY-BASED LENDING ---------- TUESDAY, MARCH 29, 2022 House of Representatives, Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, Washington, DC. The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 2360, Rayburn House Office Building and via Zoom, Hon. Sharice Davids [chairwoman of the Subcommittee] presiding. Present: Representatives Davids, Bourdeaux, Chu, Meuser, Donalds, Young Kim, and Van Duyne. Chairwoman DAVIDS. Good morning. I call this hearing to order. Without objection, the Chair is authorized to declare a recess at any time. I would like to begin by noting some important requirements. Standing House and Committee rules and practice will continue to apply during hybrid proceedings. All Members are reminded that they are expected to adhere to these rules, including decorum. House regulations require Members to be visible through a video connection throughout the proceeding, so please keep your cameras on. Also, please remember to remain muted until you are recognized to minimize background noise. 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 I will recognize that Member at the next appropriate time slot provided they have returned to the proceeding. The COVID-19 pandemic highlighted long-standing inequities in the small business lending market. In March of 2020, Congress stepped in to support small businesses through the Paycheck Protection Program. Under PPP, banks and other private lenders made fully guaranteed SBA loans to small businesses hurt by the virus. Over the life of the program, PPP delivered over $800 billion in emergency loans. This aid helped small businesses keep employees on payroll and pay necessary expenses like rent and utilities. But as we heard last week in our Oversight Committee, it became clear that access to the program was not equal for everyone. Prior relationships with big banks led to the exclusion of the smallest of small businesses, putting them at risk of closing permanently. One of our top priorities for this Committee was empowering community lenders to originate more PPP loans to maximize lending in underserved communities. These institutions typically have deep ties to the smallest businesses. We incorporated set-asides in multiple pieces of legislation to allocate funds so that community lenders could participate in PPP on equal footing with bigger banks. Both the GAO and outside experts found these changes proved to be effective in making the program more accessible. In later rounds of PPP, the average loan size decreased substantially, and more funding reached businesses in underserved markets. Moreover, small firms reported the highest level of satisfaction with community-based lenders and small banks. The ability of community lenders to reach underserved businesses should serve as an important lesson moving forward. Though the PPP portal closed last May, these community lenders can be a vital tool as we work to drive an equitable recovery. In fact, many of the community lenders that helped deliver PPP to underserved businesses are already active in SBA lending programs. Programs like the 504/CDC Loan Program, SBA Microloan Program, and Community Advantage pilot loan program are all delivered by community lenders. Each program has proven effective in helping deliver capital to underserved communities. By strengthening existing SBA programs that utilize community lenders, we can help ensure that all small firms have access to the capital they need to grow and thrive. Members of this Committee have introduced and advanced numerous pieces of legislation to bolster these programs to better serve entrepreneurs. Today, I look forward to taking a close look at these proposals and hearing directly from community lenders about the issues that they face and what we can do to help. I would now like to yield to the Ranking Member Mr. Meuser for his opening statement. Mr. MEUSER. Thank you very much, Madam Chair. And thank you for holding this hearing on small business access to capital. It is and will remain one of the top issues for this Committee. Over the last few years, main street businesses across our vast nation have experienced one hurdle after another. COVID-19 shutdowns devastated our country's small businesses, entrepreneurs, and startups. From forced closures to capacity restrictions, business owners were confronted with a challenging path forward. In response to the emergency period, former President Trump and Congress enacted numerous small business relief measures, including the popular Paycheck Protection Program that was delivered to small businesses through a joint effort with private sector lenders. Today, small businesses are facing economic headwinds that are preventing their recovery and growth. If it is not scorching inflation price increases, small businesses are facing supply chain disruptions that are preventing goods from reaching their shelves. On top of ever-increasing costs, small businesses continue to have trouble finding employees. All you have to do is enter a small business and they will be sure to inform you of that. These are not the economic conditions that instill confidence into a sector of our economy that produces nearly half of the country's gross domestic product and comprises over 99 percent of all businesses in the nation. Despite these obstacles, small businesses can lead our nation back to economic growth. In order to do this, however, we must ensure the lending environment is healthy, robust, and responsible. That is why a public-private partnership lending model must continue to be the model of choice for our country when it comes to federal access to capital programs. Involving the private sector is the best way to produce efficiencies that cannot be matched or equaled by strictly the federal government. Furthermore, private sector lenders act as centennials against fraud. Anything less has proven to be very problematic and frankly, is unacceptable. One example of this public-private partnership is through the SBA's 504 CDC loan program. This program, which focuses on economic development, reached record highs last fiscal year while serving small businesses and communities across the nation. In my state, Pennsylvania, the program issued 185 loans last fiscal year for over $153 million. It does not seem all that significant but extremely significant to the 185 recipients of those loans. Again, this is an economic development-driven program; therefore, each loan requires a job creation goal or community development goal to be met. While the program continues to be successful, there is more work that needs to be done, especially when it comes to the management of the program by the SBA. The turn time on delivering loans to small business owners continues to grow, which is concerning, and the SBA has somewhat slow-walked the implementation of the 504 Express Program which it was enacted in a bipartisan manner over a year ago. Madam Chair, I would like to note that when Republicans asked about the delays in launching this new tool, all we received back from the SBA is that it would be implemented soon. This is really not acceptable. Small businesses are working tirelessly to serve their communities. Unfortunately, the actions of this administration did not always suggest that they are putting the nation's job creators at the forefront. From the SBA inadequately answering our questions to the Treasury Secretary ignoring this Committee, which I think upsets both sides of the aisle and small businesses, by refusing to testify, again, despite what the law requires. This administration must do better. With that, Madam Chair, I would like to thank you for holding this hearing, and I am looking forward to the conversation on how a public-private partnership lending models can successfully deliver capital to the nation's job creators and the communities that they serve. And I yield back. Chairwoman DAVIDS. Thank you. The gentleman yields back. And with that, I would like to introduce one of our witnesses. Our first witness is Mr. Manny Flores, president and chief executive officer of SomerCor, an SBA-certified development company located in Chicago, Illinois. In addition to making 504 loans, SomerCor is an active lender in the SBA Community Advantage pilot loan program. SomerCor also participates in the City of Chicago's Small Business Improvement Fund which promotes economic development by providing small firms in Chicago with reimbursable grants for permanent building improvement costs. SomerCor is a Member of the National Association of Development Companies (NADCO) and we are glad to have you with us today. Welcome, Mr. Flores. And I will now yield to the Ranking Member. Sorry about that. Our second witness is Mr. Kerry Doi, the president and chief executive officer of the Pacific Asian Consortium in Employment (PACE), located in Los Angeles, California. PACE is a Treasury certified community development financial institution (CDFI) and an SBA microloan intermediary and Community Advantage lender focusing on supporting primarily Asian American entrepreneurs and those from underserved communities. PACE is also a Member of the Friends of the SBA Microloan Program, a nationwide network of nonprofit microlending intermediaries focused on economic development. Welcome, Mr. Doi, and we look forward to your testimony. I would now like to yield to the Ranking Member, Mr. Meuser, to introduce our third and final witness. Mr. MEUSER. Thank you again, Madam Chairwoman. Our next witness is Brooke Mirenda. Ms. Mirenda is the president and chief executive officer of Sunshine State Economic Development Corporation, also known as SEDCO, based in Clearwater, Florida. SEDCO is a nonprofit CDC that participates in the SBA's 504 Loan Program. With over 15 years of financial services and banking experience, Ms. Mirenda also serves on the Legislative Committee with the National Association of Development Companies, the main trade association for the 504 Loan Program. Additionally, Ms. Mirenda serves on numerous community boards throughout the State of Florida. Ms. Mirenda, we are glad to have you back before the Committee. Your extensive experience in the area of economic development lending will benefit this conversation immensely. And Madam Chairwoman, I yield back. Chairwoman DAVIDS. Thank you. The gentleman yields back. And thank you to all our witnesses for being here today. Mr. Flores, you are now recognized for 5 minutes. STATEMENTS OF MANNY FLORES, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SOMERCOR; KERRY DOI, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PACIFIC ASIAN CONSORTIUM IN EMPLOYMENT (PACE); BROOKE MIRENDA, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SUNSHINE STATE ECONOMIC DEVELOPMENT CORPORATION (SEDCO) STATEMENT OF MANNY FLORES Mr. FLORES. Good morning, Chairwoman Davids, Ranking Member Meuser, and Members of the Subcommittee. Thank you for the privilege of testifying before you today to discuss the Small Business Administration community-based lending programs. My name is Manuel Flores, and I am here on behalf of SomerCor, a Certified Development Company based in Chicago, Illinois. There are more than 200 nonprofit CDCs nationwide working in their communities to deliver the SBA's 504 loan program, as well as other SBA resources like the 7(a) Community Advantage and Microloan programs. CDCs are required to invest in economic development initiatives in their areas of operation beyond their participation in the SBA 504 program. To use SomerCor as an example, not only are we one of the nation's larger CDCs by annual loan volume, we also participate in the SBA's Community Advantage loan program and administer small business grants on behalf of the City of Chicago for new investments in under- resourced communities. We are part of a national CDC network that plays an integral role through a mission-based lens in growing economic development in communities across our nation. The SBA 504 loan program is a public-private partnership that brings together traditional lenders and CDCs to help small businesses finance the acquisition of commercial real estate, make building improvements, and purchase equipment with terms typically not available conventionally. The program provides loans of up to $5 million and $5.5 million for certain industries. The hallmarks of the program include terms of 10 years for equipment and 25 years for real estate with a fixed, below market interest rate. In the wake of the COVID-19 pandemic and our ongoing economic recovery, I want to take this opportunity to highlight three policy considerations. First and foremost, it is critical for the 504 program to remain open and viable. Increased loan demand under the 504 program exceeded its then-congressionally authorized cap of $7.5 billion in fiscal year 2021, effectively shutting the program down for 3 weeks, causing a myriad of negative issues for small businesses. In fiscal year 2022, program demand continues at an unprecedented rate. We are extremely thankful Congress increased the 504 program authorization level to $11 billion for the remainder of fiscal year 2022, averting a significant disruption in the market. It is important, however, for Congress to take new steps now to avoid a program shutdown in the future as we anticipate continued growth and demand. As a zero subsidy program that encourages small business expansion, our ask is for certainty and the ability to meet rising demand long term. A step in the right direction is to combine the authorization levels of the regular 504 program and the refi without expansion programs so all 504 programs are under the same authorization level of $15 billion. My second recommendation is for passage of the 504 Modernization and Small Manufacturer's Act of 2021, H.R. 1490, which increases the 504 loan for manufacturers to $6.5 million, decreases the borrower equity injection from 10 to five percent, and includes other provisions that support small businesses in the manufacturing sector. I want to be clear that we have an opportunity to do more to catalyze increased investment in new manufacturing here in the United States. The pandemic and global supply chain disruptions laid bare the need for a stronger and more resilient domestic manufacturing sector. H.R. 1490 may provide more capital to help strengthen our manufacturing industry. Finally, we recommend adoption of NADCO's request to make the Community Advantage program permanent with provisions to set it for long-term success. This includes training for new Community Advantage lenders and viable solutions to alleviate liquidity issues that constrain the lending capacity of nonprofit CDCs. The Community Advantage program has been a pilot since 2011, but for the program to be successful, lenders and borrowers need certainty on the continuity of the program. Sitting here before you is an honor, and I do so in the spirit of advocating for small businesses who help build our communities. One such example is SomerCor client Osorio Metals Supply, a family-owned business in Chicago started by Rubin Osorio in 1992 as a one-man operation working out of his garage. This past year, Rubin and his daughter Adriana, who is now the company's chief operating officer, turned to SomerCor for an SBA 504 loan to make needed renovations to their 30,000 square foot facility. Now, Osorio Metals has a state-of-the-art facility to better serve its clients. And as Adriana said, and I quote, ``Acquiring a new facility and transforming the space to fit our needs has been a dream come true for our family business and it would not have been possible without this program.'' It is these businesses and projects that inspire our work. Again, thank you for the opportunity to testify here today, and I look forward to answering your questions. Chairwoman DAVIDS. Thank you, Mr. Flores. And Mr. Doi, you are now recognized for 5 minutes. STATEMENT OF KERRY DOI Mr. DOI. Thank you, Madam Chair, Representative Meuser, my Congresswoman Judy Chu, honorable Members of the Committee. I am Kerry Doi, CEO of PACE. Thank you for this opportunity to testify before the House Small Business Committee on the all- important catalyzing economic growth through SBA community- based lending. PACE was incorporated in 1976, and in 1993, began providing business development services to pre-startups, microenterprises, and small businesses. Since inception, PACE Business has trained or counseled more than 68,000 pre- startups, startups, operating micro and small businesses who have established or expanded over 17,000 small businesses that have created or retained over 22,000 jobs. For over 28 years, PACE has provide comprehensive wraparound services to more than 68,000 businesses across L.A. County. The SBA microloan program, which was authorized in 1991 to businesses that conventional lenders were and remain unable to finance for a variety of reasons, including lack of sufficient collateral or business experience. Nonprofit community-based intermediary lenders use the SBA microloan program to finance new and emerging businesses in urban and rural communities and eventually moved these businesses into the economic mainstream as bankable ventures. The average SBA microloan was $14,435 in FY2020. There are 144 active microloan intermediaries serving 49 states, the District of Columbia, and Puerto Rico. In FY21 alone, microlenders made an additional 4,510 loans totaling over $74 million. Of this amount, 63 percent went to existing businesses, 36.9 percent to startups, 48 percent to woman-owned businesses, 66.9 percent to minority-owned enterprises. This financing led to the creation of 7,500 jobs and the retention of over 10,000 jobs. Despite intermediaries serving at-risk small businesses, the SBA microloan program has a cumulative default rate of less than 2 percent. PAC's SBA microloan program started in 2010. Since the program launched, our loan team has deployed 323 loans for $3.3 million, with an average loan size of $10,156. As of March 15, 2022, we have 32 SBA microloans in our portfolio totaling $548,472, or an average loan size of $17,139. We reviewed H.R. 1487 and H.R. 1502. H.R. 1487 establishes a series of reporting requirements for SBA and requires an annual report on the effectiveness of the microloan program. H.R. 1502 makes a number of improvements and updates the microloan program, which we support. Of particular note, it raises the definition of small loans from $7,500 to $10,000. In addition, it establishes loans of 7 years for loans of $10,000 or less, and up to 10 years for loans that are greater than $10,000. Reviewing the allocation for SBA funds is important by reserving the first 2 quarters of the fiscal year, 15 percent of the annual microloan appropriation for unutilized states. One issue that the bill does not address is the Executive Order mandating language access that we would urge the Committee to consider. Otherwise, we fully support the bill and the microloan program which has proven itself to be an important tool for economic development. Thank you. Chairwoman DAVIDS. Thank you, Mr. Doi. Ms. Mirenda, you are recognized for 5 minutes. STATEMENT OF BROOKE MIRENDA Ms. MIRENDA. Chairwoman Davids, Ranking Member Meuser, and Members of the Subcommittee, thank you for inviting me to join in the conversation on community-based lending and the work CDCs are doing to build communities across the U.S. My name is Brooke Mirenda, and I am here on behalf of Sunshine State Economic Development Corporation (SECD), located in Clearwater, Florida, and I serve as the president and CEO. I remain intimately involved in ensuring the capital access needs of borrowers are being met, primarily via the SBA 504 loan program. I am also a Member of the National Association of Development Companies (NADC)), a trade organization dedicated to supporting the CDC industry and our collective work in the economic development arena. The SBA 504 loan program not only creates jobs in our economy, it also offers beneficial rates and terms for our small business owners, helping them to preserve capital and grow their businesses while operating at a zero subsidy. Because the core purpose of the program is economic development, all 504 borrowers must meet at least one of two specified economic development objectives which are outlined in my written testimony. In fiscal year 2021, the 504 program delivered more than $8.2 billion in financing to 9,700 businesses. The creation of retention of 85,000 jobs and a total capital investment of over $20 billion. In fact, we served so many small businesses that we reached our then-Congressional authorized cap of $7.5 billion on September 7th, and SBA was unable to approve any 504 loans until the fiscal year authorization levels reset October 1st. Volume did not dissipate in fiscal year 2022, and we began raising with NADCO to raise our concerns about another much longer much longer shutdown of the program. Thankfully, Members of this Committee, as well as our counterparts in the Senate, came together to work with appropriators to ensure businesses have access to the job creating financing they need by increasing the authorization level for the regular 504 program to $11 billion for the remainder of the fiscal year. I want to take a moment to share my sincere thanks for all the effort put into making this increase a reality. Our borrowers, our lenders, and our CDCs thank you. I believe a major reason the 504 program continues to grow is the program is a prime example of how public-private partnerships should work. The SBA administers the program and we, the private sector nonprofits focused on economic development, partner with private sector lenders to deliver the program. The CDC and lending partner each complete full loan underwriting which is then reviewed by the SBA. As a result, small business owners are not repaying their debts. The 504 has a charge off rate of $.6 percent over the last 10 years. Because of the soundness of the program, the costs associated with it are paid for by fees so it does not cost taxpayers any money. The program is performing extremely well and providing much needed capital to our nation's job creators, small businesses. However, there are considerations Congress should keep in mind to make sure it stays successful. First and foremost, the program needs to stay open. I, along with NADCO, urge Congress to work together to come to a long-term solution to the 504 authorization level including combining the regular 504 and debt refinance without expansion caps. It would be devastating to small businesses and to the reputation of the program if the program would have shut down for any period of time. Secondly, as a result of the increased profile at the SBA and the economic impacts of the pandemic on small businesses, its lending programs are experiencing increased demand. However, SBA is largely operating with the same staffing levels as they were pre-pandemic, and although they are working hard to keep up with the demand of the program, over time and overworked staff is not a permanent solution. A solution is one passed by Congress in the Economic Aid Act which is a pilot within the 504 program that would allow vetted, proven CDCs with ALP status to more efficiently process loans up to $500,000. SEDCO alone would have been able to process 51 percent of our loans under this program. The CDC industry is still awaiting the rule implementation which is to sunset in fiscal year 2023. NADCO and I recommend Congress extending the sunset to fiscal year 2027 to allow it sufficient time to operate in order for SBA and Congress to be able to make an informed determination on its efficacy. My final recommendation is for the implementation process of laws that impact the SBA's lending programs to include a dialogue about congress intent. For example, Congress authorized changes to the debt refinance without expansion program in the Economic Aid Act. Those changes we believe were intended to bring parity to the refinancing of government debt among SBA lending programs. However, the implementation of the debt refinance provisions included parameters that limit the ability of CDCs to reach as many small business owners as the changes should allow. I sincerely appreciate the opportunity to bring these issues to your attention and talk about a program that is doing phenomenally well with $4.48 billion in approved 504 loans as of March 18th. I look forward to working with you to ensure the future success of this public-private partnership and I am happy to answer any questions. Chairwoman DAVIDS. Thank you, Ms. Mirenda. And thank you to all of our witnesses for joining us today. We appreciate your expertise and the recommendations and considerations that you've shared with us. So, I will begin by recognizing myself for 5 minutes. So, even as we have seen a booming economy in this last year, the reality is that a lot of small business owners are still facing some pretty enormous challenges. Whether that is from inflation or supply chain shortages, a lot of small businesses are still working with very slim margins and pretty uncertain nods. Mr. Flores, as a 504 and Community Advantage lender, you are able to offer small businesses the full range of eligible loan uses from long-term fixed asset and real estate financing to the 504 program working capital in the Community Advantage Program. With the broad range of eligible uses, how do the SBA community lending programs help small businesses compete amid growing uncertainty around things like energy prices and other costs? And Ms. Mirenda, if you want to chime in after. Mr. FLORES. Thank you, Madam Chair, for that question. In my opinion and my view and in my experience in seeing firsthand how these programs work, it is about providing stability. In particular, the 504 program, because you have these long terms associated with it, it allows businesses for better planning, for preserving capital, and it is also affordable financing. With regards to the Community Advantage Loan program, it is a $50,000 to $250,000 loan program as you know, and that is, frankly, it is a challenging type of loan to find conventionally. So, we can fill a gap in the market to be able to assist these small businesses. And in particular, we are looking to support businesses in low- and moderate-income communities as part of that initiative. So, it really provides additional support for these businesses that frankly without these programs, they would not have those capital options. Chairwoman DAVIDS. And so, I am curious with the mixture and breadth that you both see in the work you are doing. Can you talk a little bit about the ability to both plan long term, or longer term, while also being kind of flexible and adaptable to the economic environment that we have seen and the ways that you all engage with your clientele? Mr. FLORES. So, Madam Chair, the Certified Development Company Network is made up of companies that are working directly in their neighborhoods and communities. And while we take a lot of pride in providing very high quality expertise in the lending process, we also, oftentimes, provide technical assistance. Working hand-in-hand with chambers of commerce and other important community stakeholders in making sure that people are made aware of the resources that the Small Business Administration offers, but then also providing some very direct support in how to access these loans. How to become loan ready if you are not at a point in your business to be able to access a 504 loan. Or with these businesses on how to engage in better planning. We view ourselves as strategic partners in all areas related to economic development and support of strengthening a small business ecosystem. And we do so, again, in reinforcing not only the partnership with organizations such as chambers of commerce, but also with other lending partners * banks, credit unions * that also play an integral role in the deployment of these programs along with CDCs. Ms. MIRENDA. So thank you for the question. And we are a Community Advantage lender as well. We have funded a little over $2 million just this year in Community Advantage loans. The other thing is he mentioned management technical assistance. Just so you guys know, that is a requirement on the Community Advantage Loan program. So, we have to, every quarter, we talk with our borrowers and discuss how their financials are going. What does their P&L look like? What does their balance sheet look like? Do they have any questions? Have they been able to hire any folks? Things like that. So, I just wanted to bring that to your attention. The other thing, too, as far as lenders go, a lot of our deals do come from our bankers. They know about the CA loan program. There are deals that they cannot do conventionally so they will refer deals out to us, you know, for a startup and things like that. Chairwoman DAVIDS. It takes an ecosystem. And I will yield back and recognize our Ranking Member, Mr. Meuser, for 5 minutes. Mr. MEUSER. Thank you, Madam Chairwoman, very much. Mr. Flores, Ms. Mirenda, thanks for being with us, as well to other testifier. I appreciate it. So, I have to say, I like what I am hearing from my years in business and working with small businesses and growing a small business into a large business. You know, when you read things such as I think it is barely 18 percent of small businesses seeking loans or lines of credits, line of credit, actually get what they want and what is sufficient. Having this SBA service and public-private partnership that has worked with you folks is very important, so I want to try to move through some questions relatively quickly if we can. So, Ms. Mirenda, how many businesses do you work with? Ms. MIRENDA. How many businesses do we work with? Mr. MEUSER. Yes. How many loans do you extend? How many businesses do you---- Ms. MIRENDA. Last year we approved 61 loans. Mr. MEUSER. Sixty-one. Ms. MIRENDA. Over the State of Florida. Mr. MEUSER. How about you, Mr. Flores? Mr. FLORES. Our current portfolio is more than $430 million. We right now are on pace to reach $150 million. So, $130, $150 million in loan originations in the 504 program. Mr. MEUSER. What is the average amounts? Ninety thousand? One hundred thousand? Mr. FLORES. For us in the 504 program, it is a loan amount of about $800,000. Mr. MEUSER. Eight hundred thousand. Ms. MIRENDA. That is about right. Eight hundred thousand. Mr. MEUSER. Okay. My mistake. Okay. And how many do you deny? How many come in that you deny? Ms. MIRENDA. A small amount. And the reason is because we are usually getting referrals from our lending partners. Mr. MEUSER. Okay. Ms. MIRENDA. They are well-trained on what works and what does not. Mr. MEUSER. That is where most of them come---- Ms. MIRENDA. So that is where a lot of our deals come from, exactly, from banks and credit unions. Mr. MEUSER. So they clearly have other banking relationships? Ms. MIRENDA. Absolutely. Yes. Mr. MEUSER. For the most part? Ms. MIRENDA. Yes. Mr. MEUSER. Okay. So, we talked about some struggles, of course, that small businesses have--workforce, inflation, energy costs, taxes. I just want to ask you, the idea that the 100 percent depreciation may end at the end of this year which certainly needs to be extended and the idea that a C corporation may go from 21 percent federal income tax to 28 percent is certainly not in the interest of small business because, as you well know, there's well over a million small businesses that are C corporations. Many companies that were family businesses way back and others for various reasons are C corporations. C corporation does not mean that they are a multi-billion dollar business. So just relatively quickly, tell me what struggles you are seeing, because you deal with small businesses every day, what are you hearing from your clients? Ms. MIRENDA. So a few things come to mind. The first one is interest rates are starting to rise. Our 504 loan program in the last 6 to 8 months has risen 1 percent. Now, we are still under 4 percent so it is still a very low rate. However, I think we got a little spoiled with 3 percent interest rates. So, our rate is still a little under 4 percent for 25 years. So, they are getting squeezed there. I would also say employees are costing more money. Obviously, the rate has gone up for hourly employees. I was just talking to a franchise owner about 2 weeks ago regarding this and their cost of goods is going up. So, what happens is price then go up. So, what we are seeing is they are having trouble finding people and they are seeing interest rates going up, so they are really trying to lock in interest rates which is why the 504 program is so advantageous for small business owners because the commercial loan that they partner with, we partner with on the first, they price that however they would price a typical commercial loan. But the SBA thought the portion that we finance, because it is a split loan, basically, is fixed for 20 or 25 years. So that is why they are seeking out this program. Mr. MEUSER. Okay. Mr. Flores, you mentioned a word before ``stability.'' I think any business would appreciate that thought and that level of consistency. So why do you not expand? What are you hearing from your clients? Mr. FLORES. So, inflation, labor shortages, and supply chain constraints are big problems. And we need to understand there are still a lot of business out there suffering, particularly in the hospitality industry. So, when we think about opportunities to strengthen programs that we know have a positive track record, at the minimum, we should work strengthening these programs. Mr. MEUSER. True. Mr. FLORES. And that stability and being able to count on some support is critical. So, I am just going to use this opportunity to say, looking at ways to making sure that 504 program is adequately funded is critical. Mr. MEUSER. Okay. And that is very important. My time has run out but I do want to hear from you if we have a second round, or later, even in writing. You deal in the real world so any improvements--you started expanding on this, Ms. Mirenda, I would love to hear more from you on that. So, I yield back. Thank you. Chairwoman DAVIDS. Thank you. The Ranking Member yields back. And the Chair now recognizes Congresswoman Chu for 5 minutes. Ms. CHU. Mr. Doi, thank you for joining the Committee today to share the incredible story of PACE for the congressional record. Since you are an agency in Los Angeles, which is my area, I have known of the incredible success of PACE for many, many years, and I know how much you have done to help the most vulnerable communities be able to become successful in small business. So, as we examine the work SBA did with the Paycheck Protection Program, I appreciate that this Committee is taking note of PPP's initial challenges in reaching the smallest businesses and how the reliance on community lenders such as yourselves and community development corporations helped bridge that gap. I have long been a proponent of the Community Advantage program which aims to serve many of the same underserved and micro businesses. One proposal I have long been working towards would be to lift the loan cap that Community Advantage lenders could issue from $250,000 to $350,000. Can you discuss the benefits of lifting the cap on the types of businesses that you serve? Mr. DOI. Thank you for the question, Congresswoman. It would be of tremendous benefit. Hundreds of businesses come to us every year. Many of them new entrepreneurs. We provide a whole lot of business counseling to these small businesses prior to offering them microloans, anything under $50,000. And as my testimony indicated, it is averaging $10,000 loans. But as we continue to work with them and help them grow where they learn business basics, a business bootcamp, if you will, and they grow. Also, in my written testimony I talked about one business that we provided a $500,000 loan to that ended up hiring 20 employees. And so, lifting the cap on the Community Advantage Program would help tremendously as these types of businesses grow from being micro to regular bankable small businesses. Ms. CHU. Thank you for that. Mr. Doi, in your written testimony you alluded to work PACE does in assisting refugees and those who sought asylum in the U.S. I have heard so many inspirational stories of those that you have helped who maybe did not have the credit history and all kinds of circumstances that they face. In particular, your testimony tells the story of my constituent, Don Wong. Because he was an asylee, Don had limited business credit history so he was not able to get that traditional loan, but PACE helped him secure the loan he needed to purchase a new truck to begin his own trucking business from the Ports of Los Angeles and Long Beach, helping to relieve the supply chain backlog that we are all experiencing in this country today. With the nation's attention on the needs of refugees, such as those coming here from Afghanistan or Ukraine, Mr. Doi, can you discuss the type of work PACE does in particular to assist refugees starting their own businesses? What kind of impact does this work have on the economy of the Los Angeles area? Mr. DOI. Thank you again for that question, Congresswoman. Yes. In working with asylees, as well as refugees, most of them do not understand all of the culture, the nuances of America. And so, we provide not only small business counseling, but social services counseling also so that they understand the rules, the regulations, business licensing, permits, reporting to IRS and accounting. All of those kinds of things. And so, I want to reemphasize the need for technical assistance. It is, indeed, important as we take these people that for many reasons do not have the local work experience, do not have the local education, et cetera, but they do have the entrepreneurial drive. And therefore, can put food on the table and a roof over their heads. And so that is why this program is so critical. Ms. CHU. Thank you. And I yield back. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair now recognizes, Rep. Kim, Ranking Member of the Subcommittee on Innovation, Entrepreneurship, and Workforce Development. Ms. YOUNG KIM. Thank you, Chairwoman Davis, and Ranking Member Meuser, for hosting this hearing. And I want to thank all of our witnesses for joining us today. Over the last 5 years, one of the local CDCs serving my district, the California 39th District, is CDC Small Business Finance. And this has provided over 24 small businesses with financing over $34 million and supporting 667 jobs. For this CDC, it is just a snapshot of what successful private-public partnerships can do to deliver much-needed capital to allow small businesses to expand and generate jobs in our communities. I have helped introduce a number of 504 bills, including the 504 Modernization and Manufacturing bill that Mr. Manny Flores mentioned today. This bill also includes several new policy goals for the program, including workforce development, which we now know is an ongoing issue for employers across the country. So, I want to ask you, Mr. Flores, what do you think, or can you anticipate the type of benefit that would come from including workforce development in the policy goals of the program? Mr. FLORES. Thank you, Madam Congresswoman. It sends a powerful message. It tells everybody who is applying for a 504 loan who is working in the manufacturing sector that we need to continue to focus on preparing a ready workforce that is going to meet the demands of our dynamic marketplace today. Not tomorrow, today. I often speak to a lot of businesses who are having labor shortage issues. Oftentimes we hear that small businesses cannot find people to employ with the skills needed to meet their needs. So, anything that we can do to promote workforce development and training is a very positive thing to do and tying it directly to a 504 program that is all about job creation makes a lot of sense. So, we strongly support those efforts and I think it would be very well received in the marketplace. Ms. YOUNG KIM. Right. We are working hard to pass that bill, H.R. 1490, so thank you. I hope to see this stand into law quickly. And Ms. Mirenda, as you mentioned in your testimony, the CDC industry is still awaiting the implementing the ALP Express Pilot program. How has this delay implementing the pilot program impacted the CDC industry and small businesses, and do you think the SBA would benefit from the pilot program by getting loan processes off their plate? Ms. MIRENDA. Thank you for the question. Yes. It was passed in the Economic Aid Act in December of 2020, and so we are still waiting on the implementation of the ruling. And ALP Express, what that would do is that would allow us as ALP lenders, which is Accredited Lender Program to unilaterally approve SBA loans. And right now, SBA's turnaround times are very long. Just as far as 327 actions are concerned, 327 actions are any changes made after an authorization is granted to us. And so, any of those changes, they are taking up to 18 business days, which is over 3 weeks. And so that is really affecting our small business owners. That is where I think ALP Express would come into play where we can unilaterally make decisions. And I am sure we would be vetted by OCRAM, which they would come in and audit us and audit our financials and the things that they do, but that would be okay because we are proven CDCs. Ms. YOUNG KIM. And so let's look at the 504 program with tasking the premier economic development program at the SBA for decades. And it really has made things strong bipartisanly throughout the years. So, in your estimation, Ms. Mirenda, what are the main drivers or hallmarks behind this continued bipartisan effort? Ms. MIRENDA. I would say the first thing is it operates on a zero subsidy. I think that is important to both parties. Second is we have a job creation goal. There is an economic job creation goal or an economic impact that for every single 504 loan we do and the default rate, I mean, default rate for 10 years is .6 percent. So, it would be hard to argue on either side why the 504 loan program is not advantageous for small business owners. Ms. YOUNG KIM. Well, thank you so much. Thank you for being here, again, and I yield back. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair now recognizes Rep. Bourdeaux for 5 minutes. Ms. BOURDEAUX. Thank you, Chairwoman Davids, and Ranking Member Meuser for holding today's hearing. Community lenders are critical to expanding access to capital for small businesses, in particularly those in undeserved markets, including many in my congressional district. One of the clearest examples of this is the PPP program which showed how important it is to support community- based lenders and the work that they are doing every day. This is a question for Mr. Doi. I really appreciate the technical assistance and outreach that you do to small businesses. And one of the things that we found around the PPP loan program was that a lot of our really, really small businesses did not know about the loan and really needed a lot of proactive technical assistance. I went and talked to them and it seemed like we almost needed to go into their barber shop, into their restaurant, set up a laptop, and walk them through the program because they just did not have the lawyers and the accountants and all of that backing support. All of their energy was being thrown into just trying to keep their business up and running. And so, I was wondering if you could talk a little bit more about technical assistance and what is needed in terms of a more proactive effort to go out there and really support some of our smallest of small businesses and make sure they can access things like the PPP Loan Program or the Microloan program through the SBA? Mr. DOI. Thank you for that question, Congresswoman. You have pointed out a really big issue in the small business community. And it is not only in LA.; it is throughout the country. In talking to our colleagues throughout the country that are involved in entrepreneurial development and growing new start businesses especially, they do not know. And even the ones that have been in existence for 5 years do not know about all the various products and services that are available to them. What is important is that as a community-based lender that we participate in the economic ecosystem. That would include the chamber of commerces, the banking associations, other economic development organizations. And that helps to spread the word. And even doing so is not enough. I mentioned the need for language access. We are proud to be able to say that our organization speaks over 40 different languages and dialects which is highly unusual for any organization throughout the country. Because so many of these people where English is not their first language do not know anything about the services that are available. And I also mentioned the president's Executive Order mandating language access. And it is so critically important but it is an unfunded mandate. And so, adjusting the formula for technical assistance would really help, especially in outreaching to those that have never heard of these kinds of services before. Ms. BOURDEAUX. Thank you for that. And one of the community projects I was very pleased to be able to get into the budget was $100,000 for my Small Business Development Center to provide more in-language access. I have a very diverse community but we have to kind of build our institutions to meet those needs. We still are not in a place where an organization like yours is. It is just taking us some time. We are much newer to that kind of diversity so we are working on that. One other quick question. One of the programs we talk about an awful lot is the microloan program and that seemed to be a really good fit for some of these really first-time entrepreneurs. Do you have any recommendations of how Congress could continue to improve this program and expand access for these small, often immigrant-owned businesses? Mr. DOI. I do not like to be redundant but I do not think that it hurts to continue to repeat that technical assistance is so important, not only on the front end but on the back end. It is really an important thing to have in-language business counseling, and so that is why in our small business 101 workshops we do it in language, in as many as eight different languages if necessary. Ms. BOURDEAUX. Thank you so much. And I really appreciate the good work you do. I yield back. Mr. DOI. Thank you very much. Thank you. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair now recognizes Rep. Van Duyne, the Ranking Member on the Subcommittee of Oversight, Investigations, and Regulations. Ms. VAN DUYNE. Thank you very much, Chairwoman Davids and Ranking Member Meuser for holding this hearing. Over the past 2 years, small businesses have faced seemingly endless challenges to their overall survival. For months, we talked about how ending the pandemic would return us to business as usual but that is no longer the case. Months of stimulus and overly generous unemployment benefits have resulted in excessive demands, hobbled supply chains, and extremely tight labor markets. And now small business owners are being forced to react to these economic realities. The NFIB February Small Business Report found that 68 percent of small businesses have raised prices and almost half cannot fill staff positions as nominal wages rise at the fastest pace in decades. The administration's unsustainable relationship with spending money we do not have has led us to the next new business crisis, record high inflation, numbers we have not seen since the early 1980s. And in response, the FED and lenders have begun to raise rates adding yet another cost increase to their thin margins. We would make one thing very clear today. Regardless of how good SBA is at facilitating lending, that cannot make up for the anti-growth environment created by this administration. The NFIB report emphasizes this with zero percent of small business owners reporting financing as their top issue while inflation, labor, and taxes top their concerns. Unfortunately, this administration appears not to have learned its lesson. Amidst our runaway inflation, the president's budget released yesterday included a more than $1.1 trillion deficit next year and a $6.5 trillion deficit over the next 5 years. It is time to reverse course and for this Congress to emphasize fiscal responsibility by ending unnecessary spending, clawing back fraud, and addressing actual pressing issues like the Medicare Trust Fund that goes insolvent in 2026. I want to thank our witnesses for their testimony today and for Ms. Mirenda, I appreciate your testimony. We have all seen and read articles about the massive amount of fraud in SBA programs over the last 2 years. NBC News just released a piece yesterday claiming that the SBA's PPP program is the ``biggest fraud in a generation.'' And they said the SBA basically said to people apply and sign. What did not happen was even minimal checks to make sure that that money was getting to the right people. And now the SBA wants to get into the direct lending business. Do you believe the SBA can underwrite and service small business loans as efficiently and as prudently as you do? Ms. MIRENDA. Thank you for your question. I do not think it is a good idea for SBA to do direct lending. The reason for that is, the reason our 504 program works so well is because we have a dual underwriting process with a lender and there is a fiscal responsibility with the lender. And an example would be EIDL. I mean, we were at dinner last night and a woman came up to us about their EIDL loan and that is direct lending right now with SBA. So, it is my professional opinion that, no, I do not think that would be a wise decision. I think maintaining the 504 as my colleague has pointed out, making sure this program stays open and stays viable, the programs that are clearly working, that are partnership programs. Even the CA loan program that we facilitate is working very, very well. So that would be my response. Ms. VAN DUYNE. Do you think that the relationship that you have with your banking clients actually has led you to have less fraud because you know actually who you are loaning money to and you are able to actually put that due diligence in that the SBA has not been able to do? Ms. MIRENDA. Yes. I think that partnership is imperative. I mean, they are regulated as well, and so are we by the SBA. But, yes. I mean, you mentioned PPP. The lenders did it really well and I am not sure what group made CFIs but that worked really well, too, community financial institutions that were doing the smaller PPP loans as well. That was something that changed and I think that the advantages as lenders are doing all their due diligence because they have to. They have to know their customer. They are required to. So that is why this partnership works very, very well in the 504. Ms. VAN DUYNE. I really appreciate your responses here today and I yield back. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair now recognizes Rep. Donalds for 5 minutes. Mr. DONALDS. Thank you, Madam Chair. I am going to do something we typically do not do. I am not going to use my full 5 minutes. I just wanted to actually recognize Ms. Mirenda from the great state of Florida. Thank you for all the hard work that you are doing on behalf of small business owners. And with that, Madam Chair, I yield back. Chairwoman DAVIDS. All right. Well, thank you. Thank you again to our witnesses for testifying today. I also want to thank you for all of the work that you have done for American small businesses since the pandemic began. This has certainly been a really rough few years. As we know, small businesses are the foundation of the American economy. Getting our economy back to full strength depends on the well-being of our small businesses. The pandemic recovery is certainly going to take time but we know that the recovery is going to be jeopardized if the smallest of our small businesses are not being thought of. Accessing capital is a primary concern of a lot of small businesses, and we have to strive to ensure that certainly underbanked and underserved businesses have access to the funding that they need to be able to succeed. And as the Paycheck Protection Program demonstrated [audio malfunction]. [Whereupon, at 10:59 a.m., the subcommittee was adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]