[Senate Hearing 118-88] [From the U.S. Government Publishing Office] S. Hrg. 118-88 OVERSIGHT OF THE U.S. SMALL BUSINESS ADMINISTRATION AND REVIEW OF THE PRESIDENT'S FISCAL YEAR 2024 BUDGET PROPOSAL ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP OF THE UNITED STATES SENATE ONE HUNDRED EIGHTEENTH CONGRESS FIRST SESSION __________ MARCH 22, 2023 __________ Printed for the use of the Committee on Small Business and Entrepreneurship [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 53-224 WASHINGTON : 2024 COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED EIGHTEENTH CONGRESS ---------- BENJAMIN L. CARDIN, Maryland, Chairman JONI ERNST, Iowa, Ranking Member MARIA CANTWELL, Washington MARCO RUBIO, Florida JEANNE SHAHEEN, New Hampshire JAMES E. RISCH, Idaho EDWARD J. MARKEY, Massachusetts RAND PAUL, Kentucky CORY A. BOOKER, New Jersey TIM SCOTT, South Carolina CHRISTOPHER A. COONS, Delaware TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois JOSH HAWLEY, Missouri JACKY ROSEN, Nevada TED BUDD, North Carolina JOHN W. HICKENLOOPER, Colorado Sean Moore, Democratic Staff Director Meredith West, Republican Staff Director C O N T E N T S ---------- MARCH 22, 2023 Opening Statements Page Benjamin L. Cardin, Chairman, U.S. Senator from Maryland......... 1 Joni Ernst, Ranking Member, U.S. Senator from Iowa............... 3 Witness The Honorable Isabella Casillas Guzman, Administrator, U.S. Small Business Administration,....................................... 5 Prepared Statement........................................... 8 Additional Letters/Statements for the Record Chairman Cardin and Ranking Member Ernst Letter dated March 6, 2023................................... 32 U.S. Small Business Administration Response to Letter from Chairman Cardin and Ranking Member Ernst, dated March 20, 2023................................ 36 U.S. Department of Justice, Civil Rights Division Report ``The Compelling Interest to Remedy the Effects of Discrimination in Federal Contracting: A Survey of Recent Evidence''................................................. 57 Financial Technology Association Statement dated March 22, 2023............................... 116 Minority Business Development Agency, U.S. Department of Commerce Report dated February 7, 2022................................ 120 National Association of Federally-Insured Credit Unions Letter dated March 22, 2023.................................. 141 SCORE Statement dated April 5, 2023................................ 143 Ultima Services Corporation vs. U.S. Department of Agriculture Report of Defendant's Expert, dated February 4, 2022, corrected April 22, 2022................................... 146 Questions for the Record The Honorable Isabella Casillas Guzman Responses to questions submitted by Chairman Cardin, Ranking Member Ernst, Senators Shaheen, Hirono, Hickenlooper, Risch and Young.................................................. 369 OVERSIGHT OF THE U.S. SMALL BUSINESS ADMINISTRATION AND REVIEW OF THE PRESIDENT'S FISCAL YEAR 2024 BUDGET PROPOSAL ---------- WEDNESDAY, MARCH 22, 2023 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The committee met, pursuant to notice, at 3:00 p.m., in Room 428-A, Russell Senate Office Building, Hon. Benjamin Cardin, Chairman of the Committee, presiding. Present: Senators Cardin [presiding], Cantwell, Shaheen, Markey, Booker, Coons, Hirono, Duckworth, Rosen, Hickenlooper, Ernst, Risch, Young, Hawley, and Budd. OPENING STATEMENT OF SENATOR CARDIN Chairman Cardin. The Committee will come to order. I want to welcome Administrator Guzman to our Committee and thank her for joining us once again. It is hard to believe but next Monday will mark the 3 years to the date that the CARES Act was signed into law. It has arguably been the hardest time to be a small business owner in the modern history of our nation. However, it is so encouraging to sit here today with the sense that we can and will do more to help small business owners. I say ``we'' because of the bipartisanship that characterizes this Committee and because it was Members of Congress from both sides of the aisle that came together again and again to provide extraordinary relief that saved hundreds of thousands of businesses from disappearing. I do not want to downplay the hardship that the pandemic has caused for small businesses. Survival over the last 3 years has not been easy, and even today I continue to hear about the challenges that the pandemic left in its wake: mountainous debt, new expectations from customers about safety and risk prevention, industries and business models completely transformed. I also do not want to underplay the severity of the fraud that has come to light in some of these programs. Those who take advantage of relief that was meant for deserving small businesses should be prosecuted to the fullest extent of the law. I will work with the SBA and the inspector general to ensure that they have the resources necessary to identify those who viewed our collective response to tragedy as an opportunity to steal from the American taxpayer. We are fortunately, though, to be in a position now when we cannot only look back and take stock of how the pandemic changed what it has meant to be a small business but also look forward and take steps to improve the services and support that the Federal Government, and the SBA, in particular, provide to foster and promote small business development. Today I feel greatly optimistic for our nation's small businesses and for our Committee. I am delighted to be joined by our new Ranking Member, Senator Ernst. Senator Ernst and I share a passion for helping small businesses, and we are committed to working together to help small businesses. We have many shared objectives, and I am confident that working together will yield great results for this Committee. I am also delighted to be joined by Administrator Guzman once again to discuss the Administration's proposed budget for the Small Business Administration. From reading through the President's budget it becomes clear how much he and Administrator Guzman care about the success of small businesses. The Administration's budget proposal reflects its commitment to harnessing the power of government to lift up businesses in underserved communities that have historically been denied access to credit and opportunities to contract with the Federal Government. The fact is that the recent explosion we have seen in new business registrations coming out of the pandemic is being driven by entrepreneurs in some of our most underserved communities, with minorities and especially minority women driving the surge. Applications to open new businesses grew by 37 percent since 2019, and 5.4 million business applications were filed in 2021, a record high. In 2020 and 2021, 49 percent of new business launches were led by women, with nearly half in 2020 launched by women of color. President Biden and Administrator Guzman understand this and have made supporting minorities, women, and entrepreneurs across the country, including those in rural America, one of the highest priorities of this Administration. I want to commend Administrator Guzman for her commitment to expanding the reach of the SBA lending programs to underserved communities. While we may not see eye to eye on some of the particulars of the Administration's strategy, including the two ambitious rulemakings unveiled late last year, I know we share a common goal to help our country's small businesses. I want to acknowledge that Senator Ernst and I sent a letter to the Administrator on March 6th. It requested a great deal of information. It also expressed some of our concerns about the rules that were being proposed. On March 20th we received a reply to that letter. I am going to make that letter and the reply part of this record, without objection. Chairman Cardin. I must tell you I was impressed by the speed and thoroughness of the reply that we received from the Small Business Administration. It is clear that you are listening to the comments about the rules that you have proposed, and you are willing to make adjustments in those rules in order to deal with the legitimate concerns that have been raised by the different stakeholders. That is very encouraging to all of us. And while we still may have some differences, we do not differ on what the objective of the mission is, and that is to open up more lending opportunities, particularly in traditionally underserved communities, so we thank you for that. I must also stress the importance of ensuring that the SBA is equipped to meet the needs of the historic number of Americans engaged in entrepreneurship. That is why I introduced a comprehensive reauthorization bill this past December that sets out my priorities for the new Congress. I would reauthorize some of SBA's most important and successful entrepreneurial development programs, including the Small Business Development Centers, the SBDC Program, programs for veterans, business owners, Women's Business Centers, SCORE, and the remarkably effective State Trade Expansion Program, STEP. I would also make permanent the Community Advantage Loan Program, which has shown great success getting capital to underserved entrepreneurs. Last year I was so glad to see that the Administration extended this program for 2 years, and implemented necessary changes such as increasing the maximum loan size and expanding the number of lenders that participate in the Community Advantage Program. Now it is up to Congress to recognize the need to make the program a permanent part of the SBA lending toolkit. I might acknowledge that the proposed rule, which tries to give predictability to Community Advantage lenders moving forward under the SBLCs, it is not inconsistent for us to make the Community Advantage Program permanent. That is our responsibility, and I hope we take advantage of that. The reauthorization package also contains two initiatives that are personally very important to me. One, the UPLIFT Act, which would give the SBA the tools and resources to nurture the next generation of entrepreneurs by creating a network of incubators and accelerators on the campuses of our nation's historically black colleges and universities, minority-serving institutions, and community colleges. Second, the NEW START Act, which would connect justice-impacted individuals to entrepreneurial resources, helping to lower their rate of unemployment. I look forward to working with Senator Ernst to advance these priorities so that we can help more underserved entrepreneurs than ever before, in Maryland, in Iowa, and across the country. Administrator Guzman, thank you for joining us today. I look forward to hearing your testimony and engaging in the conversations with this Committee. And it is now my pleasure to recognize the distinguished Ranking Member, Senator Ernst. OPENING STATEMENT OF SENATOR ERNST Senator Ernst. Thank you very much, Chairman Cardin, and thank you, Administrator Guzman, for being here today. In addition to hearing from the SBA Administrator about the budget request today, the Committee also voted on Mr. Dilawar Syed's nomination to be the Deputy Administrator of the agency. A critical commitment I received from Mr. Syed is to prioritize fraud detection and prevention, which is among the greatest obstacles facing the SBA. A primary focus of the agency should be to aid in the recovery of the more than $100 billion in fraudulent and improper loans made through the SBA COVID relief programs. Report after report has been released from the investigative community indicating tremendous levels of fraud, yet the vast majority of stolen funds remain unrecovered. These reports include a suspected $5.4 billion in loans made using stolen Social Security numbers, and $1.3 billion of Economic Injury Disaster Loans to applicants with foreign IP addresses. Current recoveries by the SBA inspector general total an estimated $9 billion, but that is just a drop in the bucket. The design of the Paycheck Protection Program was to get money out the door quickly and to keep employees connected to their employer when the government forced our economy to shut down. Fraud in ineligible firms were supposed to be flagged and recouped on the back end through the forgiveness process, yet the Biden administration has forgiven $754 billion, or 92 percent of all PPP loans, while ignoring the inspector general's warnings, wiping their books clean while fraud compounds. In your testimony, Administrator Guzman, you state that the SBA is referring fraud cases to the inspector general but without specifics. We all saw President Biden say, in his State of the Union address, that the government will go after all COVID fraudsters. Despite that claim, the Administration has made the decision not to pursue debt collections on roughly $1.1 billion worth of PPP loans under $100,000, citing concerns about equity and fairness. And folks, we all know who that is not fair to. That is the taxpayers. Their hard-earned money went into the pockets of potential fraudsters and bad actors, and the SBA, under the Administrator's direction, has not pursued these collections, even though it is required by statute. I am concerned the SBA is not pursuing administrative recoveries. There is so much work to be done on recoveries right now, and the budget priorities the President sent to Congress do not reflect that. For instance, your budget request to repurpose $14 million for the IG for audits and investigations. Comparatively, you request more than twice that amount, $30 million, for the Community Navigators Program, which was created by the reckless spending in the strictly partisan so-called American Rescue Plan. Community Navigators became a woke fund, which gave money to Democrats' favored organizations, including a diversity, equity, and inclusion performing arts nonprofit and a fraternity. While the Administration has written off its obligations to recover improper COVID aid, the SBA has published several controversial proposed rules in the SBA's lending programs. Not only is the SBA inappropriately trying to legislate through the regulatory process, but these changes threaten to destabilize the agency and the taxpayers' balance sheet. In a time where we are seeing serious inflation, bank failures, and warnings of economic recession, I do have to ask why we are gambling with taxpayer money. The SBA's proposed rules loosen prudent underwriting, which is concerning for large 7(a) loans. It may also lead to predatory lending practices in these government-backed loans while also opening lending programs to an unlimited number of unregulated fintechs, the very entities responsible for COVID relief fraud. With these new changes you are relying on the assumption that Congress will bail out the SBA in the future. Administrator Guzman, this is not Monopoly money. You and I know that. And I hope that we will not continue to pass Go and collect new appropriations for unauthorized rules, and of course, put our taxpayers deeper into debt. The SBA needs to be efficient and serve America's entrepreneurs. It does not need to be making risky bets on the taxpayer's dime. I urge the agency to reverse course on the proposed rules and shift resources to reviewing all loans suspected of fraud by investigators and pursue administrative recoveries. Thank you, Mr. Chair. Chairman Cardin. Thank you, Senator Ernst. We will now hear from the Administrator, Administrator Guzman. First let me thank you so much for your openness with this Committee, your availability, and again, I appreciate very much the prompt reply to the letter that I wrote with Senator Ernst, and thank you for your leadership. You may proceed. STATEMENT OF HON. ISABELLA CASILLAS GUZMAN, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION Ms. Guzman. Thank you so much. Chairman Cardin, Ranking Member Ernst, as well as the distinguished members of the Committee, I appreciate the opportunity to share a little bit more about the SBA, the Small Business Administration, and the impact we have as well as the continuous improvement that we make towards ensuring that our small businesses and innovative startups can launch and grow successfully. The entrepreneurial spirit of the American people and their trademark grit, perseverance, and agility that we know so well have really made small businesses our nation's most important driver of job growth, competition, and innovation. America's entrepreneurs have not only helped to deliver an incredible economic expansion but they are also powering a huge surge in new businesses. In 2021 to 2022, we saw 10.5 million new business applications across America, those people who are starting businesses, the most that we have had in any 2-year span on record. And we are already seeing our preexisting businesses as well as these new businesses grow by leveraging opportunities in our economy that the Biden-Harris administration is investing in. I have seen firsthand how these small businesses have continued to grow, hire, and retain their workforce as well as pilot and adapt, truly trying to ensure that they can survive the remaining supply chain challenges, inflationary pressures, and a tight labor market. They consistently outline that funding their businesses, that growth capital or access to working capital, is one of their biggest challenges, especially as we see them facing rising interest rates and tightening credit standards. That is why helping small businesses access affordable capital is a top priority at the SBA. In 2022, SBA delivered more than $43 billion across our capital programs, and finally reversed a 5-year decline in small-dollar lending. But we continue to see large gaps in the availability of capital, especially those dollar amounts under $150,000. And the funding gap limits entrepreneurial growth, especially for the smallest businesses, as well as for minority, veteran, rural, and other historically underserved communities. To effectively address this market gap the SBA has to streamline its programs, its regulations, for both loans and investments. First and foremost, we need more competition in the marketplace, and capacity for small business lending. That is why we proposed expanding our distribution networks by revitalizing the Small Business Lending Company Program. The SBLC rule will make the Community Advantage pilot program permanent, sustainable, and provide certainty to the over 100 nonprofit, mission-oriented lenders who have been effectively lending to underserved in the 7(a) program. SBA can expand the number of these mission lenders with this rule change, serving the hardest-to-reach small businesses through a new Community Advantage license, and will also lift the cap on regular SBLC licenses, enabling SBA to admit new, non-depository lenders, aligned with the agency's mission in the 7(a) program. Second of all, we are modernizing our loan products and meeting our businesses where they are by cutting red tape and complexity in our 7(a) and 504 programs. Simplicity is critical, based on extensive feedback from our lending partners over the past decade. We need to streamline our affiliation rules. Those are the rules that lenders have shared are most burdensome in our regulation. We are also aligning with existing lender best practices on credit underwriting, not loosening underwriting. And as we implement we will prioritize maintaining the core integrity and oversight of SBA's lending programs. Based on past oversight performance within the SBA as well as existing structures and processes that have been put in place, we can both improve our support for underserved communities, these small-dollar loans in particular, and strengthen the program integrity at the same time. Third is that we are adding a provision to help owners with business transitions to employee ownership in particular. SBA is finding ways for its products to help finance partial buyouts, which could help an owner, for example, sell their business to employees for a successful exit. Finally, a bipartisan interest of this Committee has been to attract more private capital to the innovative startups, critical to our national economic competitiveness and national defense. That is why we have proposed a rule modifying the Small Business Investment Company, or SBIC, program with a new accrual SBIC license, really to incentivize patient and growth capital. We will expand investment opportunities in rural and underserved communities by ensuring a diversified portfolio across the nation and streamlining the licensing process to account for operational experience. The SBA must effectively address capital gaps so we can provide that credit and the investment to borrowers who cannot find it elsewhere but who are powering the economy. At the same time, as we move forward with these updates to our programs we continue to build on the lessons learned through managing the large disaster response. Our COVID relief served as important lifelines to help so many businesses, preserve jobs, and recover quickly. But while these programs have ended, the SBA continues to support small businesses through ongoing loan servicing, grant reporting, PPP forgiveness, and we will work with the appropriators and Congress to ensure the agency has the necessary resources to serve these businesses. You know, we are maintaining the day one Biden-Harris priority to combat efforts really to combat fraud in pandemic relief. We instituted standard fraud controls to deliver funds with not just speed but certainty, and we implemented the GAO's recommendations to improve SBA operations to detect and collaborate with the inspector general as well, to recover our stolen funds, and continue to work with law enforcement agencies. I can report that the SBA is more strongly positioned to combat fraud, waste, and abuse across its disaster capital and other programs as a result of these changes. Then strengthened position enables us to better serve the 33 million small businesses and disaster survivors into the future. Thank you for your time. I look forward to your questions and diving into more details. [The prepared statement of Ms. Guzman follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Well thank you. I agree with you completely about the challenges we have with access to capital from traditionally underserved communities and small businesses that have been left behind in the past. When you look at the 7(a) and 504, the two primary programs that the SBA sponsors the numbers are not terribly encouraging when you look at target groups that you would want to see more representative of their numbers in our community underrepresented in the amount of 7(a) loans and 504 loans. So I agree with you. We need to open up the program, and I think that is what you are intending to do. But one program that you have mentioned that has worked well is the Community Advantage 7(a) program. They are smaller loans, and the numbers there are much more encouraging as far as reaching traditionally underserved communities. And you took steps to extend that program and now, under a rule that you are considering, you are going to use the SBLCs as a way of continuing these programs beyond their current expiration date. I really want to get a better understanding, because it seems like the CAs are working, and what worries me is as you transition into a new program do we maintain the strength of the Community Advantage programs to make sure that they stay focused on the underserved communities or do they now get lost in this new rule that you are proposing that could cause them to become too expensive and go toward larger loans rather than the smaller loans? Ms. Guzman. The Community Advantage lenders are the CDFIs, the Community Development Financial Institutions, the CDCs, the Community Development Corporations, who are, by mission, oriented towards filling gaps in the marketplace with underserved communities. Across the SBA's portfolio we serve about 58 percent to underserved communities, and this portfolio, in particular, has a higher index. But what they will share with you directly is that they have been unable to scale. We do about 500 loans within the Community Advantage program, and just over 50,000 to 60,000 across our portfolio. They will say that not having that permanence disincentivizes investment in expanding the program. And so in order to really, truly put the wind behind their sails, giving them an option to access the SBLC program--which, in the past, Community Advantage lenders have done, because you can get the existing 14 licenses within the SBLCs--that that gives them more empowerment to truly raise the capital, get the liquidity that they need to scale, and serve these underserved businesses across the country. And so we are hoping by establishing this option for Community Advantage partners to get into the SBLC program they will be able to develop scale and better serve across the country. Chairman Cardin. Well, we share with you the view that it should be made permanent. We recognize that you consider that done by your regulations. We think Congress could support this by action. So I think we are on the same page as to trying to get the predictability to the CA lenders. I could talk about a lot of things in the budget that I am very excited about and agree with completely, et cetera, but I am going to use my time on a disappointment that is in your budget, a couple of areas that I am surprised that you would not have a greater priority. And one is the field offices. We have heard from so many of our members of this Committee about the service levels at field offices, that they need to strengthen, and you have a flat budget in regard to the support for the field offices. That is our outreach office. That is where the locals can get the information they need. Small businesses do not have the deep pockets, and the Small Business field offices can help make that connection to the SBA services. So what was the rationale for level funding the field office operations where the other programs saw some increases? Ms. Guzman. I was proud to see, overall, our entrepreneurial development programs increase by $14 million in the budget, which speaks to that ecosystem locally, that small businesses need across our resource partner networks, obviously. But the field is a big part of that, as a gateway, in essence, to Federal services. They market our services to about 1 million businesses and stakeholders every year, and obviously that is a huge impact. When we look at our budget, though, year over year, we have seen, in essence, a decline in our salaries and expenses, our S&E, as the increases do not account for the year-after-year COLA, the cost-of-living adjustments, that we have to put in. So we have been unable to grow our staff across the field. And so as a result, feeling the consequences across the agency, not within just the field offices but everywhere where we touch directly to small businesses, for example, through our Capital Access, that has tremendous customer service and works directly with small businesses. So obviously we want to continue to see our resources expand and be able to better support and reach more businesses every day in the field, as well as across our programs. So I look forward to continuing to work with you and the appropriators to see if we can continue to support entrepreneurial development through the SBA. Chairman Cardin. And we will work together. I just point out you will find, from the members of this Committee, we have a lot of confidence in our field offices, and we recognize that they are stressed. With all the new opportunities that are being given through the COVID programs, et cetera, there is even greater need in the field. Senator Ernst. Senator Ernst. Yes. I will yield my time to Senator Risch for the time being, so he can get back to his other committee. Senator Risch. Thank you very much. I appreciate that. I want to make a short statement, and then I will have some questions for the record. So thank you so much. First of all, thank you to both of you for holding this important oversight hearing. Access to capital is one of the most significant hurdles facing small businesses as they start and grow, especially in our current economic environment. We all know that. With that said I am concerned that new rules put forth by the SBA could jeopardize the 7(a) program's integrity. Although the SBA believes these rules will increase access to capital in underserved communities, I am concerned it will do just the opposite. The new rules would allow new unsupervised entities like fintechs into the program, weakening underwriting requirements, erode affiliation standards, and much more. I have a number of questions about this and I will submit that for the record. But I do have one question I will ask Ms. Guzman now, and that is, the SBA is proposing to cut millions in funding for the Small Business Development Centers, who are essential to maintaining the strength of small businesses in Idaho and across the country. I wonder if you could explain to us what prompted that? What was crossing your mind when you thought about reducing that funding that has been so important to us? Ms. Guzman. Thank you so much for the question. Again, I would reiterate that the budget for entrepreneurial development did increase overall by $14 million, and we continue to invest in and expand our programs for veterans specific support around contracting and [inaudible] as well as for expanding our network through [inaudible]. Senator Risch. So are you taking the money away from the Small Business Development Centers for these other programs? Is that what you are telling us? Ms. Guzman. Overall, we are working to increase and enhance the entrepreneurial ecosystem overall. The SBDCs, we just celebrated SBDC Day, are an important part of that network. Senator Risch. It was not much of a celebration when they found out they were getting their budget cut. Ms. Guzman. They reach about 300,000 businesses every year, and during the pandemic actually increasingly working in collaboration and partnership across our networks, which is a great thing for our small businesses. We are encouraged by that and we will continue to look towards working with the appropriators---- Senator Risch. What does better than the SBDCs as far as promoting small businesses? You are taking this money and putting it somewhere else. Where is that somewhere else that does better than the SBDCs? Ms. Guzman. Across all of our entrepreneurial development programs---- Senator Risch. That is not an answer. That is just saying you are taking it out and throwing it to the wind. Specifically, where is that money going instead of the SBDCs? Ms. Guzman. The entrepreneurial development includes our Women's Business Centers, our Veterans Business Outreach Centers, as well as our SCORE partners, the SBDCs, of course, specific services around contracting and capital access, so that we can get in and provide technical assistance to get contract ready, financial ready. All of it is advisory services, free advisory services to American small businesses, and that is the really key part of what the SBDCs deliver, as well as all of our great grantees across those programs. Senator Risch. Well, I am going to have to look at the rest of the budget, but I have got to tell you, I am deeply disappointed that that cut has been made and the money is being spread somewhere else. And we are going to try to reverse that, unless you can show me where those dollars will be doing better than the SBDCs. Thank you, Mr. Chairman. I appreciate that. Chairman Cardin. Senator Risch, I share those concerns. I think the SBDC program, as well as the field offices, play a critical role on outreach to the small businesses that do not have the resources to figure these things out. The other entrepreneurial partners are very important. Do not get me wrong. By the way, the SCORE program and the STEP program were also reduced in the budget, which I have some questions about as well. But I do think that the SBDCs are critically important, so I share those concerns. Senator Risch. Well, Mr. Chairman, I concur with you 100 percent, and it is possible she has got a better place for the money. But I want to hear it, not just saying, well, we are going to put it out and spread it amongst these. I mean, it does not make sense when we have such a successful program. There is nobody saying that this program is not successful. So I really object to taking it away from them and putting it somewhere else. If she can make a case, which she has not here, then maybe I will go along with it and agree that we should take the money away from the SBDCs and put it to a place where it will make---- Chairman Cardin. Discussion to continue. Senator Shaheen. Senator Shaheen. Thank you, Mr. Chairman, and Administrator Guzman, thank you for being here. I am sure you will not be surprised to hear that I share the concerns that both the Chairman and Senator Risch have expressed not only about the SBDCs but about the district offices. The last 3 years have been really critical in New Hampshire for our small businesses, as you know, and many of them have survived through COVID only because of the work of the SBA and our district offices. And as a member of both this Committee and the Appropriations Committee, I am concerned about proposal that I think the SBA is working on that would limit staffing and funding to our district offices. It appears that resources are being consolidated in the central office. And as I am sure you remember, I asked you about this issue last April, and the omnibus budget in December directed the SBA to report details on district office staffing and funding levels for the last 5 years. Do you expect that we will get that report on district-level staffing in the near future? Ms. Guzman. Yes, Senator. That report is being finalized now, so I expect it by this week, so potentially tomorrow or by the end of the week, for sure. Senator Shaheen. Great. And is there anything that you can share with us today about what our district offices can expect in terms of resources for the next year? Ms. Guzman. Well again, we will work with the appropriators and hopefully see an increase that reflects a potential for growing our staff. What I will share, and the field often references themselves as the tip of the spear, and they are, and provide a critical function, but I want to make sure that it is clear that I need to balance the entire priorities of the SBA with the limited resources that we have. The rest of that spear is the products that we deliver, the certifications that businesses count on to do business with the Federal Government, as well as the capital access programs and the disaster programs. So all of that is really critical work, and the field has been an incredible customer service arm that is on the ground with small businesses, and that is highly valued. But as we look towards trying to go beyond our reach at the SBA, as we did with PPP, go beyond this million marketed to within the field and the 300,000 reached within the SBDCs or the couple hundred thousand with SCORE, et cetera, all those numbers, we want to go beyond. We know that businesses were not connected to the SBA, because we saw that in the first 2 weeks of PPP. And so we are trying to evolve and make sure that we are meeting their needs into the future so that it is more inclusive. Senator Shaheen. And I certainly support that. In New Hampshire, however, it is the district office that makes that connection to small businesses. They are not connected to the SBA without that service that is provided by the district office, or the SBDCs, and again, I share Senator Risch's concern. Last year, the New Hampshire SBDC advised more than 1,400 clients, up from less than 900 in 2019, and the SBA has requested a 14 percent cut to SBDC funding for 2024. That works out to a cut of $105,000 in New Hampshire, even though they are advising 60 percent more clients. I think that is untenable. And the last time the SBDCs received this little funding was in 2016, so it is really a major cut to their budget. And again, you have commented on where you think that money should go, but I share the view that those other programs are not going to provide the same kind of service that is currently being provided by the SBDC in New Hampshire. So I am sure we will continue to have this discussion in this Committee and at the Appropriations Committee. I also want to ask you about the State Trade Expansion Program, the STEP program, which has really made a huge difference in new Hampshire in terms of increasing exports. During 2022, we saw a 14 percent increase in exports over 2021, and I think the STEP program had a lot to do with that. There are some questions about how we make that more flexible, more responsive to the needs of small businesses. So can you talk about what you might be considering in terms of how that program can better address the concerns that the people who are using it have? Ms. Guzman. Well, thank you, and the STEP program supports 51 states and territories current, and we look to continue to expand and grow that to all 56. It is a critical program. We have been evaluating right now what a small business exporter is. We have relied on the Department of Commerce data that showed 267,000 businesses were exporters. But that did not account for the true reality that small businesses are accidental exporters as soon as they put their website online, and those digital providers out there will tell you that a majority of their businesses on Etsy, et cetera, are actually exporting. So we have done some research of our own to account for those 2,500-and-under exports who are shipping in small batches and found with those, along with the service providers that are surveyed, not counted one by one, we actually have more about 1.3 million exporters. And so really trying to recognize that digital service providers, these digital sales that are happening on e-commerce around the world, are important. So constantly we will update and modify the program and simplify it so that our states can continue to get the performance that they are getting out of the program. Senator Shaheen. Well, I can tell you in the Appropriations Committee I am arguing that we should fully fund that program at its authorized level. So thank you. Thank you, Mr. Chairman. I look forward to the conversation. Chairman Cardin. Senator Ernst. Senator Ernst. Yes, thank you, and you will not be surprised to hear that in Iowa as well we are concerned about the SBDCs and the field offices. So I think there is a lot of agreement from this Committee that we are concerned about the funding there. So, Administrator, I have been watching the news, as most folks have, about Silicon Valley Bank and Signature Bank, and those regional and community banks are very critical to our small businesses and their lending. When the credit market tightens we have historically seen a higher volume of SBA lending. Signature Bank is one of the largest lenders in the 7(a) secondary market, and they have now ceased buying new bids on 7(a) loans. This will make it very difficult for our lenders to continue to have liquidity to make new loans, especially those non-depository institutions like our small business lending companies. So what is the Administration doing to oversee Signature Bank and communicate the updates with those lenders? Ms. Guzman. Well, obviously the quick action by the regulators to ensure that the small businesses and the individual depositors were safe across the banking industry was important, as banks need liquidity to do lending across the board. You know, obviously we are tracking closely all of the financial institutions that either hold our loans or that participate in our securities, whether that is on our Small Business Investment Companies or within our guarantee program. You know, the Administration continues to take strong action to ensure that the banking industry continues to be supported and resilient during this time, as signaled by the Secretary of the Treasury as well as the regulators. So the SBA's view is that this just demonstrates further why we need to address the capital gaps and fix our programs to better reach and support banks who have liquidity issues right now, and a guarantee would be perfect for their bottom line. Right now, 4,000 of the 4,500 community banks, for example, who serve so many communities across the nation, have not done an SBA loan in the last 2 years. And so we need to get them back in, simplify the program, and make sure that they can use their prudent credit underwriting standards in order to deliver these loans. Senator Ernst. And this would be a prime example why strong underwriting is really important as well. I hope that this has been a one-off situation, but I think it is encouraging many of those institutions to go back and relook what their practices are. So again, I hope it is a one-off. Administrator, recently Chairman Cardin and I sent you a letter detailing our concerns about two of our recent proposed rules regarding affiliation and the SBLC moratorium that could open SBA lending programs to fraud, predatory lending practices, and other vulnerabilities. These rules are without congressional input or authorization, and in spite of recent fraud levels witnessed in COVID relief programs. So when should we expect those final rules? Ms. Guzman. Those are still currently in process. We are accounting for all the public comments that we received over the 60-day period of time. And what I would share with you is that obviously we are taking into account all the recommendations that we have received, not only through public comment but by continuous feedback from this Committee as well as the advocates out there who are supporting as well as opposing. So we are still in process. It is beyond the regulation. We want to make sure that all processes are in place and our operating procedures, so that we can be ready to support or lenders. This is about expanding access to capital with prudent, demonstrated programs, such as the SBLC that has already done over $14 billion over the decades that it has been in action, as well as, of course, the SBA Express, that uses the credit underwriting standards that we are moving towards within this new reg change, and they have been successful. Over 20 of the last 23 years, SBA Express term loans have outperformed against the 7(a) term loans. So we are confident that that credit underwriting standard that we are putting forward has data to support it. So these are administrative regulatory changes that we think will streamline for our banking partners, especially getting those community banks in, as well allowing us to expand our distribution networks. Senator Ernst. Okay. And I know we did receive your response. I do want to thank you as well for the letter that was sent back to Chairman Cardin and I. You do continue to state that PPP is the basis for removing most of the affiliation test, and I just need to restate that Congress did not authorize a permanent change to larger 7(a) loans for affiliation or underwriting criteria because of COVID programs. Further, this is yet one more example of this Administration not letting an emergency go to waste, and instead using the COVID crisis as justification for more of that government spending and overreach. And I will come back to this if we get a second round of questions here, because I do have a little bit more than I would love to discuss on this issue. And I will yield. Thank you. Chairman Cardin. Senator Rosen. Senator Rosen. Well, thank you, Chairman Cardin, Ranking Member Ernst for holding this hearing, and thank you Administrator Guzman always for your vast amount of knowledge and care for the Small Business Administration. And I am going to give a plug for our Nevada small business district offices, state offices. They went above and beyond during COVID, and they just helped thousands of small businesses, and we are really grateful, and I think we all share that concern. But I want to move over to students who want to open up small businesses because in my home state of Nevada, small businesses, of course, 99 percent of business, small business, is the economic engine of our communities, and of course, diversity is our strength. So I want to ensure that minority entrepreneurs and small owners have the proper resources to thrive. To address this I was proud to introduce the Minority Entrepreneurship Grant Program Act with Senator Tillis last Congress. And our bipartisan legislation would establish minority entrepreneurship program at SBA to award grants to MSI, minority-serving institutions, and HBCUs, the historically Black colleges and universities, to promote and increase opportunities for minority student business ownership and entrepreneurship. And I am glad to see the President's budget proposal supports funding this technical assistance to colleges and universities to further promote entrepreneurship. So Administrator Guzman, how would you plan to use such funding to address the needs of aspiring young students serving through MSIs and HBCUs? Ms. Guzman. Thank you so much for that question, and the Administration has focused on ensuring that we truly can support all of our small businesses. There is a changing face of entrepreneurship, as you have seen in your home state. Women and people of color are starting businesses at the highest rates, yet they do not have the same success outcomes due to lack of capital. And so it is a critical gap, and that is what the SBA's mission is, to fill those capital gaps. So obviously we are committed to deploying the programs that are authorized and ensuring that we prudently deliver the objective of Congress to reach these businesses. We are currently, though, setting up networks to be able to work with MSIs. Specifically, expanding the number of MSIs within our Women's Business Center network is example, by 3x. And they exist within our SBDC network as well, and we are continuing to try to partner so that students are more informed and ready to launch their great idea if that time comes. And so we are committed to, as well, serving those institutions and working in partnership with them, and we continue to explore options. So we would be happy to provide technical assistance on that and give you the support needed to deliver our program. Senator Rosen. Thank you. I appreciate that. I want to turn now to something that Nevada has a lot of small businesses in. It is home to nearly 100 legally operated cannabis businesses across our state. And one of the greatest barriers for these businesses is lack of access to capital and resources. So I have made it my priority to ensure there is an expansion, an SBA loan eligibility for small businesses in the Nevada and nationwide, and in November of 2022, I introduced the Fair Access for Cannabis Small Business Act. So that is going to ensure that those legally operating cannabis small businesses, they will have access to loans and programs provided by the SBA. So how do you think SBA can assist state legal cannabis businesses and what else do you think Congress can do to break down the barriers here? Ms. Guzman. Well, currently cannabis is, of course, a Federal Schedule 1 substance. We are not allowed to lend to any businesses in the cannabis field. We are happy, though, to provide technical assistance around our programs to make sure that you receive that support from the SBA experts in terms of the program implementation and what that would mean. Senator Rosen. Thank you. We are going to keep working on that. And I am very pleased that the Ranking Member and I have something we love to talk about, a great bill that we have done together for childcare providers, and we want to expand that loan eligibility for them. Because in Nevada, and, of course, across this nation, parents of nearly 75 percent of children under the age of 5 do not have access to a licensed childcare provider, whether if it is because of lengthy waitlists, long distances, high costs, things are just unaffordable. So in many instances the annual cost of childcare is more expensive than a year of college tuition in my state. And so currently only for-profit childcare providers have full access to all the SBA loan products, and so while nonprofit providers only have access to the SBA's microloan program, and that is capped at $50,000. So other loan products, such as 7(a) and 504 loan programs are just off limits, and it really is blocking access for these nonprofit childcare providers to establish things right in the local community, really to support our families. So Senator Ernst and I have the Small Business Childcare Investment Act--we are very proud of that one--to allow these nonprofit childcare providers to take advantage of everything the SBA has to offer. So will you commit to working with us to be sure that we can advance this effort to provide nonprofit childcare providers access so that everyone has access to good quality childcare, wherever they live? Ms. Guzman. Yes. Most definitely, as I shared, childcare is a priority area for us. We do boot camps for childcare entrepreneurs and would be happy to look at expanding access to capital across our programs and provide technical assistance to you. Senator Rosen. Thank you. I appreciate it. Chairman Cardin. Senator Hickenlooper. Senator Hickenlooper. Thank you, Mr. Chair, and Administrator Guzman, what a delight to see you, and to follow your success from afar. I appreciate all the hard work. Ms. Guzman. Thank you. Senator Hickenlooper. As you know, the recent Federal Reserve study shows that fintech leaders, quote/unquote, ``have a potential to create a more inclusive financial system, allowing small businesses that were less likely to receive credit from traditional lenders to access credit and to do so at a lower cost,'' end quote. How can fintechs fill gaps in the market in the SBA program and get more dollars to traditionally underserved communities that usually try for the first time, in many cases, to access capital? Ms. Guzman. Studies have shown that fintechs operate more successfully in ZIP codes that are more banking deserts, that they are able to fill capital gaps. Just if you look at them as a business model they are going after the gaps that the banks are not going after, so those small-dollar loans is where they have made a lot of headway. While there have been good and bad actors in the fintech industry in the past, they have demonstrated, within our programs, that they helped to ensure that underserved communities were able to access critical programs at the SBA. Senator Hickenlooper. Great. 7(a) operates to provide capital to those who cannot otherwise access it, but also have the ability to repay loans. In order to lower the risk to the program and target SBLC lending to smaller businesses, would SBA consider imposing initial caps on the loan sizes for new SBLCs that are gradually increased as new SBLCs mature in this program? Ms. Guzman. The SBLC is an established program for multiple decades, and what we are trying to do is drive in our licensing program, our licensing component of the proposed SBLC program, a drive towards filling market gaps, which is in the small- dollar lending space. And what we are trying to do is incentivize loans, especially $500,000 and under, within this program, and then broadly across our 7(a) program. So we are continuing to look at ways to ensure that happens through our oversight and protections that are in place. So I am happy to look into this further with you. Senator Hickenlooper. Yeah, I saw that there were a number of comment letters on the rule to remove the moratorium on SBLC, and we look at that in a supportive way. I thought I would ask a question also about, as a veteran borrower of the 504 program, are there ways we could expand that program as well? And I realize those loans generally are smaller than the 7(a) loans and not as popular with the banks, or certainly different kinds of lenders. But I look at especially truly small businesses, immigrant-founded businesses. It is a unique way they can enhance their exit when they actually sell their business. When you own your real estate it is a big difference, and in my case, the multiple of free cash flow was almost double because we owned the real estate, compared to if we were just selling that cash flow. Ms. Guzman. The 504 program, I agree, is one of the critical mainstays for small businesses who have to be able to defend and stay in the location that they started in. In many cases it gets expensive. So owning that real estate also is a retention strategy for longevity. We are looking at the 504 program currently, but as well, I would say that the rule changes that we are making right now are supported by NADCO, which is the National Association of Development Companies, who are organized around our 504 program, to deliver this program. They will tell you that the affiliation rule is a barrier, which focuses too much on control and not enough on just simple ownership. So NADCO is completely supportive as they believe that will unlock some capital and obviously propel the 504 program further. So I am looking forward to being able to streamline the program, cut the red tape, and have the support of NADCO. Senator Hickenlooper. Great. I think that is perfect, and I think the potential, especially at some of the franchise programs, where franchisees could be encouraged to purchase their building as well. There are very, very few franchise companies that do that. Some of them own the property themselves and allow their franchisees to rent it from them. But I am a big believer of that long-term success. Last question, and we talk about this every time we have been together, reauthorization. It has been 20 years. How can we talk about reauthorization in such a way that we can reaffirm our commitment to Main Street? Ms. Guzman. Well, obviously the SBA celebrated its 70th year this year, and we were focused and founded to ensure competition and innovation exist in our economy through small businesses. You know, SBA has evolved dramatically since it was last reauthorized in terms of the types of programs, like STEP, SBA Express, and some great programs that exist at the agency today. But we look forward to working collaboratively with the Committee as reauthorization is considered, and based on that ensure that the programs and services that we offer to small businesses are supported. I can only offer my support to make sure that that process is as effective for our small businesses and the outcomes that they need. Senator Hickenlooper. Great. As always, thank you for your public service. I yield back to the chair. Chairman Cardin. Senator Budd. Senator Budd. Thank you, Chairman. Administrator, thank you for being here. I appreciate your time today. Back on February 16th, President Biden issued Executive Order 14091, and it has to do with the opportunity for entrepreneurs. I think that we would all agree that we should be providing more opportunity to entrepreneurs of all backgrounds. But here is where the concern is, is about the true purpose of this executive order. For example, the title of Section 3 is ``Delivering Equitable Outcomes Through Government Policies, Programs, and Activities.'' Furthermore, the phrase ``equitable outcomes'' is used no less than eight times throughout the document. Given the repeated usage of this term ``outcomes,'' Administrator, under your leadership is the SBA, is it primarily concerned with equality of opportunity or equality of outcome? Ms. Guzman. Equality of opportunity. I mean, we see that there is a great disparity in the systems and supports for our small businesses across the board in underserved communities. And as we work to fill gaps as the agency and ensure that all small businesses, entrepreneurs with great ideas have the opportunity to grow their business, commercialize it, start it, et cetera, we want to make sure that our programs are accessible to all of our entrepreneurs. Senator Budd. I mean, your language is powerful. Why the use repeatedly of ``outcome'' versus ``opportunity''? I mean, for decades EEOC is about opportunity, not outcomes. I know it was not random. I was just seeing if there was a philosophy behind that. Ms. Guzman. Well, you know, I know that if we present more opportunities, you know, as studies have shown, when we invest in all of our businesses they can have better outcomes. So I think that is the connection for me, is that I know if I deliver opportunity, if I deliver access to key programs, the success factors that businesses need, that we can see better outcomes for all of our businesses. Senator Budd. I think that is critical. I mean, I like how you addressed that, but if we are presenting more opportunities let us talk about presenting more opportunities rather than what it is going to get to, because that is what we do. We want equal opportunity. So we are just paying attention to that and seeing--we want to level the playing field of opportunity, so I would agree with you in that. The SBA's proposed affiliation rule tells lenders that they no longer need to consider well-established underwriting criteria and instead allows lenders to do what they believe is an acceptable loan. So let us not forget that the current underwriting criteria, it stabilized the 7(a) program, it minimized losses to taxpayers, and kept the cost of capital to borrowers reasonable. So your proposed rule would, as I understand it, would erase those standards and it would create a system where lenders could use a taxpayer-backed portfolio to engage in extremely risky loans. That could dramatically impact portfolio performance, loss rates, and ultimately cost to borrowers. This is concerning to me, and I think that it should be concerning to the Committee. So if you would, do you believe that lenders should consider experience and the strength of a business when making a government-backed loan? Ms. Guzman. Thank you so much for that question because I do want to clarify here that we are basing the credit criteria simplification on history. We have the SBA Express program, which is about 45 percent of our current volume, on which zero subsidy is based. And that portfolio has performed well. Twenty out of the last 23 years, actually those SBA Express term loans outperformed regular 7(a). And so when we are deferring to credit underwriting standards of the banks we are still holding them accountable to that essential factor of ability to repay, first and foremost. And so they are allowed to adopt their own credit underwriting standards and alternative underwriting standards, which they have been effectively performing at zero subsidy throughout the program. So we are using that data and that experience at the SBA to inform this new regulatory reform that will simplify and attract more community banks and others into the program. So thank you for that question. Senator Budd. Thank you. I think with 23 years of success, as you mentioned, that we need to continue to look at things like--and what is your opinion on looking at past earnings, projected cash flow, future prospects of abs when making government-backed loans? I think you alluded to that some, but I just wanted to elucidate that and see where you stand on that. Ms. Guzman. A lot of our financial institutions will leverage that data, that history. I mean, they look at the tax documents as well as performance and ability to repay. But I think we are deferring to the lenders with this credit criteria, obviously, and ensuring that they can continue to perform in the program. I think that is what we have been hearing from our lenders for quite some time, and they have the performance to back it up. Senator Budd. Thank you. I appreciate you being here today. Chairman Cardin. Thank you. Let me ask you--we will start a second round for those that would like to ask a question. Your budget has flat funding for the Office of Credit Management, which surprises me. All of the conversations we have had here about the responsibilities of expanding opportunities for capital for small businesses, it seems to me that puts more responsibility rather than less responsibility on the SBA, on credit management. Can you explain? Ms. Guzman. Yeah. The Office of Credit Risk Management is really critical, of course. You know, when some of these programs were initially started using pen and paper, they were able to leverage technology. We have a very strong team of 29 individuals, plus 7 contracts, with staffing and technology to help us manage our portfolio. We perform quarterly reviews of the portfolio as well as more deep dive risk reviews and improper permit reviews, so that we can ensure that we are holding our lenders to a high standard and are able to identify risk and problems in the portfolio early. So we continue to support this office, and the office has done thorough analysis to ensure that it is resourced and able to support the expansion of these regulatory forms through the SBLC. Chairman Cardin. So you have adequate resources to do that with a flat budget? Ms. Guzman. Yes, and we have proposed an additional 30 nonprofit Community Advantage lenders and an additional 3 non- depository institutions on top of that. So those numbers were based on an analysis of capacity at our Office of Credit Risk Management. Chairman Cardin. Let me go to a different subject and ask for your help, and we are coordinating this with the Senate Finance Committee. We are extremely concerned about what we hear from small businesses in regard to compliance with the tax laws of our country, that it is extremely difficult for small businesses that use basically the individual tax returns to do their taxes, that there needs to be more sensitivity to small businesses. We are going to try to weigh in with the Senate Finance Committee. It is their jurisdiction but they want to work with us on this. I would certainly welcome whatever help you could give us in your experiences with the small businesses that you operate with where the major needs are for reform within our tax code, to help small businesses. Ms. Guzman. Yes, we are happy to provide that technical assistance. Obviously, tax returns are really critical in our COVID relief programs as well as our ongoing programs. Chairman Cardin. Right. I assume you have had a lot of contact in that regard. Ms. Guzman. Correct. Yes. And we definitely recognize that small businesses want tax fairness, and for them that means simplicity, easy to understand. You know, they do not have the lawyers and accountants to hire to try to help them navigate a complex tax system, and it is oftentimes complicated for them to track some of these filings, and that is why you see challenges when they go to seek capital. So as much as we can to simplify the process for them, that will help them access capital and help them start and grow more effectively. Chairman Cardin. We have had discussions during this hearing about minority-serving institutions and HBCUs. I just really want to applaud the efforts that have been, at least in my state of Maryland we have gone from one Women's Business Center to four Women's Business Centers. We have a women's Business Center located at Bowie State University, the oldest of our HBCUs. Morgan State university is also engaged in this. We have a Business Innovation Center at Bowie State. We have really engaged our minority-serving institutions in a way that has expanded tremendous opportunity, and Maryland has been one of the leading states in the nation on the start of minority small businesses. So I just think we need to just learn from those experiences and build on those experiences, because we do reach communities we have not traditionally reached. And I think your Administration is doing an excellent job in that regard, and I just really wanted to put that on the record. The one area that I hope we will continue to work on is returning citizens, criminal justice-impacted individuals. We still could do a lot more, and I know there is some bipartisan interest in our Committee to try to do that. So I welcome your thoughts on how we can expand opportunities for justice- impacted individuals. Ms. Guzman. Thank you for that, and I would welcome the opportunity to work on that. It is something that the SBA has taken up. We addressed this directly within the Community Advantage expansion, an extension effort that we led last year, in ensuring that returning citizens who entrepreneurial are able to access capital within our programs. And so we would continue to look at how we can better support them through our technical assistance, capital programs, and all of our support networks. Chairman Cardin. In many respects there are less barriers to entrepreneurship than there is to employment, so it is an area that we really can expand opportunity. Senator Ernst. Senator Ernst. Yes. Thank you, Chairman. And I want to go back because I think the SBA Express, you have brought that up a few times now, and you said that you have the data to justify the underwriting through SBA Express. So if you do have that data I would love some follow-up. My staff had sent questions about Express several months ago and we have not yet received a reply. So perhaps your staff could assist us with that this week. So going back to the proposed lending rules, you have stated that the final rule, or will the final rule eliminate our credit analysis, the control and management affiliation test and character and reputation criteria for the 7(a) program. I think Senator Budd was asking something similar to this, but will the final rule eliminate those criteria? Ms. Guzman. The final rule on affiliation focuses on affiliation eligibility of control. And so I know that you had mentioned earlier that we have referenced the PPP portfolio as an example of removing affiliation. With the PPP it was unique in that they removed affiliation related to control but also impacted the size standard at the SBA as well, by allowing location-specific analysis. So for affiliation, obviously we are committed to making sure that we continue to look at ownership, that our lending partners obviously continue to look at the ability to repay, which means that they will have to have the cash flow, the assets with collateral that are unencumbered for them to be able to support a loan, and an ability to access SBA lending in particular. So affiliation eligibility is being removed. As well, we are going to simplify the way that banks access our program by allowing their credit underwriting standards to be deployed. So as long as they are able to continue to use their credit underwriting standards, obviously we review our lenders on an ongoing basis to make sure that they are held to a high performance standard and not including risky loans into the portfolio. But yes, those are the two key areas around the affiliation rule. And then, of course, allowing for partial buyout, so that owners can start to exit successfully by selling part of their business only. Senator Ernst. Sure, and I do want to caution because I know we do hear from, if you look at the 504 program, those lenders do support the changes in the underwriting because it does help streamline and provide efficiency in their program. But we do not want to conflate the 504 program with our 7(a). Those are completely different programs. They operate differently and there is different levels of risk to our taxpayers. So I do hope that that is taken into consideration. So then, as well, if we can talk a little more about the Small Business Lending Companies. So will that final rule put a firm limit on those SBLCs? Ms. Guzman. The rule itself proposed lifting the moratorium, and so we estimated what the capacity at the SBA would be, noting our Office of Credit Risk Management capacity to provide oversight to review the applications and ensure continuous oversight for that program. So with the small business licensing companies there is not a cap imposed. Currently there are 14 SBLCs in the program, operating. They have changed hands about 60 times. So we have a strong system in place and a process to approve them, but we are looking at capacity. Senator Ernst. And again, that raises concerns with me because we have had that 40-year moratorium, but as we are looking forward and we are talking about the different types of institutions that we will be opening the door for with the new rule, it really leads to an unlimited number of fintechs that could come into the institution. So I just want to raise the red flag there. I really do believe that this needs to have congressional authorization. With that, Senator Cardin, I will yield back. Chairman Cardin. Senator Coons. Senator Coons. Thank you, Chairman Cardin and Ranking Member Ernst. Administrator, it is great to see you again. Thank you for the opportunity to work together for another Congress and to do more for our small businesses nationwide. I really just had two questions I wanted to ask you about. First, I would be interested in your overall impression of SCORE. SCORE is a program that was originated in Wilmington, Delaware, and from what I have heard from Delaware businesses-- I just did a small business roundtable, actually, yesterday-- has provided fairly high levels of service, at very affordable cost. For most it is free. It has got a remarkable leverage ratio. If I understand right, there are 10,000 volunteer mentors nationwide, supported by a paid staff of about 50, and last year they helped clients start more than 30,000 businesses and create over 100,000 jobs. The client base is two-thirds women, roughly half minority, 10 percent veteran, and about 40 percent of their volunteers are women or minorities. I remember they had some significant problems in an OIG report 4 years ago. My strong impression is that under new leadership they have addressed that and there is a steady increase in demand for their services. I put together budgets when I was a county executive. I understand the challenges of striking a balance. But I was surprised to see a proposal to cut their budget by 40 percent. Is there some problem or issue with their performance that maybe I am not aware of, or is there a reason that SCORE was, in some way, focused on for that significant of a cut in the budget proposal? Ms. Guzman. SCORE is one of our critical parts across our entrepreneurial development programs. While we are requesting an additional $14 million across those programs we recognize that there are gaps in service out there and we are trying to work with limited resources and fulfill the needs, try to reverse some of the trends that we saw early on in the pandemic to ensure that more businesses are able to access and learn about the SBA. So, you know, in terms of balancing our entrepreneurial development priorities we are trying to do more for veterans, more around capital access, more around government contracting, to get firms contract ready, as well as more around navigators to connect those underserved businesses to our incredible network resource partners as well as our programs at the SBA. So it is more about working within our limited resources to expand our reach across the board. Senator Coons. If I hear you right, there is no problem or issue with SCORE whatsoever, valued member of the whole team. Just had to make a choice between, if we are going to put more in here or here we have got to take something out of here. Ms. Guzman. That is correct. We are just trying to balance an ecosystem within limited resources. Senator Coons. Well, in my view it has a strong record of cost-effectiveness, and I am likely to work to sustain its funding and to figure out some way, on a bipartisan basis, that we can provide additional resources along the lines that you have also requested. We will have a number of conversations about it. I think it is a great program and I am hoping we can see it reauthorized in this Congress. One other question. This just a specific individual question from a bank president from Southern Delaware Community Bank. His name is Jack Riddle, and they handle a fair number of SBA loans. He reached out to me in writing and said, ``Is there any reason that a smaller or community bank cannot be an SBA preferred lender,'' his point being that they have significantly more paperwork and a significantly higher guarantee requirement than one of the major banks in our state. And he had asked if we had ever discussed or considered a pilot program that might allow a community bank, with proper guardrails, for a small amount, say a loan of under half a million, to be able to show that they are capable of being an SBA preferred lender. Did the question make sense? Ms. Guzman. I believe so, yes, and I definitely welcome the opportunity to work directly with this lender as well as other lenders in Delaware and across the nation because we are looking to expand those, especially community banks, to leverage our guarantee and get capital into those small businesses. So, you know, I do not know the specifics of the case so I am sorry I cannot comment further on it, but I would welcome the opportunity to try to ensure that they can participate, at scale, with the SBA. Senator Coons. Thank you very much. I will forward the letter to you and hopefully we will get him a timely response. I appreciate your service. Ms. Guzman. Thank you. Senator Coons. And I appreciate, Mr. Chairman and Ranking Member, that we had a productive business meeting and hearing today. Chairman Cardin. Thank you, Senator Coons. Senator Ernst, anything further? Senator Ernst. No, Mr. Chair. Thank you. Thank you, Administrator. Ms. Guzman. Thank you. Chairman Cardin. Administrator Guzman, again thank you for being here today, but more importantly thank you for your leadership and your willingness to engage this Committee, members of the Senate, as well as stakeholders on making these important decisions. The record of our Committee will remain open for 2 weeks for questions for the record. We would ask, Administrator Guzman, you respond promptly to those questions. And there being no further business, the Committee stands adjourned. Thank you. [Whereupon, at 4:10 p.m., the hearing was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]