[House Hearing, 117 Congress] [From the U.S. Government Publishing Office] AN EMPIRICAL REVIEW OF THE PAYCHECK PROTECTION PROGRAM ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT, INVESTIGATIONS, AND REGULATIONS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTEENTH CONGRESS SECOND SESSION ---------- HEARING HELD MARCH 16, 2022 ---------- [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 117-050 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 47-102 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. Dean Phillips............................................... 1 Hon. Beth Van Duyne.............................................. 3 WITNESSES Mr. William Shear, Director, Financial Markets and Community Investment, United States Government Accountability Office, Washington, DC................................................. 4 Dr. Robert W. Fairlie, Professor of Economics, University of California, Santa Cruz, Santa Cruz, CA......................... 19 Dr. Manju Puri, J.B. Fuqua Professor of Finance, Duke University Fuqua School of Business, Durham, NC........................... 21 Dr. Iryna Demko, Research Associate at the Center for Economic Development, Maxine Goodman Levin College of Urban Affairs, Cleveland State University, Cleveland, OH...................... 23 Mr. Robert Barnes, President and Chief Executive Officer, PriorityOne Bank, North Magee, MS, testifying on behalf of the Independent Community Bankers of America....................... 24 APPENDIX Prepared Statements: Mr. William Shear, Director, Financial Markets and Community Investment, United States Government Accountability Office, Washington, DC............................................. 32 Dr. Robert W. Fairlie, Professor of Economics, University of California, Santa Cruz, Santa Cruz, CA..................... 54 Dr. Manju Puri, J.B. Fuqua Professor of Finance, Duke University Fuqua School of Business, Durham, NC............ 165 Dr. Iryna Demko, Research Associate at the Center for Economic Development, Maxine Goodman Levin College of Urban Affairs, Cleveland State University, Cleveland, OH......... 245 Mr. Robert Barnes, President and Chief Executive Officer, PriorityOne Bank, North Magee, MS, testifying on behalf of the Independent Community Bankers of America............... 358 Questions and Answers for the Record: Question from Hon. Mfume to Mr. Shear and Response from Mr. Shear...................................................... 365 Question from Hon. Houlahan to Dr. Demko and Response from Dr. Demko.................................................. 368 Question from Hon. Houlahan to Mr. Barnes and Response from Mr. Barnes................................................. 370 Additional Material for the Record: CUNA - Credit Union National Association..................... 371 NAFCU - National Association of Federally-Insured Credit Unions..................................................... 373 UNITE HERE Local 11.......................................... 375 Center for Responsible Lending............................... 385 Gusto........................................................ 400 AN EMPIRICAL REVIEW OF THE PAYCHECK PROTECTION PROGRAM ---------- WEDNESDAY, MARCH 16, 2022 House of Representatives, Committee on Small Business, Subcommittee on Oversight, Investigations, and Regulations, Washington, DC. The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 2360, Rayburn House Office Building, and via Zoom, Hon. Dean Phillips [chairman of the Subcommittee] presiding. Present: Representatives Phillips, Velazquez, Davids, Mfume, Houlahan, Craig, Van Duyne, Luetkemeyer, Meuser, and Donalds. Chairman PHILLIPS. Good morning, everybody. I am going to call the meeting to order. And without objection, the Chair is authorized to declare a recess at any time. And I would like to begin by noting some important requirements for everybody. Standing House and Committee rules 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 that Members 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 that 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 that they have returned to the proceeding. For those Members and staff physically present in the committee room today, in accordance with the attending physician's most recent guidance, masks are now optional and no longer required. With that, I will make an opening statement. First, I would be remiss if we didn't recognize the speech that many of us just saw in the visitor center by President Zelenskyy. We are here to talk about small businesses in the United States today. And as we do so, I just ask that we all keep in our heads and our hearts the Ukrainians who are losing not just their businesses and livelihoods, but, indeed, their lives. And we stand united as a committee, as a Congress, and as a country to stand tall in the face of tyranny. But to the issues at hand. Nearly 2 years ago, the rapid spread of COVID-19 was wreaking havoc on small businesses across our country. As people stayed home to slow the spread of the virus, business for many small firms essentially grounded to a halt. It was a time of tremendous uncertainty. Small businesses of all shapes and sizes began to wonder how long could we continue to pay our rent, our employees, and make our other expenses met. Congress recognized the pandemic's threat to small businesses and the overall economy and moved very quickly and in a bipartisan fashion to pass emergency legislation. In late March of 2020, Congress passed the CARES Act on a near unanimous basis. The bill provided over $376 billion in relief for struggling small businesses. Most of this money was allocated to the newly created Paycheck Protection Program, commonly known as PPP. Under PPP, banks and other private lenders made fully guaranteed and forgivable SBA loans to small businesses impacted by COVID. These loans were intended to allow small firms to continue to pay their employees and to cover other expenses. Since it launched in April of 2020, PPP has delivered almost $800 billion in emergency loans, making it one of the most extensive relief programs in American history. The Small Business Administration administered more aid during the COVID crisis than it did for all other disasters combined in its 67-year history. Given the massive scale of PPP and other relief programs, and the speed with which it needed to be stood up, it was inevitable that problems would arise. For example, in the early days of PPP, it became clear that funds were not reaching the most vulnerable small businesses. Instead, larger companies with preexisting relationships with large banks were prioritized in many cases in the smallest businesses' expense. The initial rollout of PPP also shut out many businesses owned by women and minorities. This Committee worked diligently to address these inequities in the program throughout the pandemic. We fought for set-asides for underserved small business and worked to empower the community lenders that served them. The PPP and Health Care Enhancement Act created set-asides of PPP funds so that entities like CDFIs, CDCs, and SBA Microloan Intermediaries could fairly compete with big banks in the program. We also passed my bill, in conjunction with Chip Roy, the PPP Flexibility Act, which made PPP loan forgiveness more accessible for firms who needed to spend a greater share of their loan proceeds on non-payroll costs. And we also passed the Economic Aid Act, which delivered more relief to the hardest hit small businesses through Second Draw loans. These changes proved to be effective in making the program more accessible for small businesses. In later rounds of PPP, the average loan size reached approximately $44,000, a marked improvement over the $199,951 average loan size during the initial round. Many researchers have analyzed the effectiveness of PPP in saving jobs and reaching small businesses throughout the country. We have a few of those experts with us today. I look forward to hearing more about their research and discussing the insights they have gained into the overall efficacy of PPP and the program updates that Congress has instituted. By looking closely at these findings, we can better prepare ourselves for future crises and help SBA's non-pandemic loan programs reach more underserved businesses more effectively and more efficiently. With that, I would like to yield to the Ranking Member, Ms. Van Duyne, for her opening statement. Ms. VAN DUYNE. Thank you very much, Mr. Chairman, for holding this critically important hearing and your continued partnership on providing proper oversight. In order to respond to the crushing State and local shutdown orders, the federal government stepped in with multiple relief programs. The Paycheck Protection Program was front and center during this emergency period ensuring relief was focused on retaining employees while requiring that dollars flow to American small businesses through the private sector lenders. As we approach the second anniversary of PPE's opening, Members of this Subcommittee and the full Committee are busy examining how this almost $800 billion program performed. And this hearing is a continuation of that discussion. As of March 6, 2020, 86 percent of all PPP recipients have requested loan forgiveness. In response, the SBA has made forgiveness payments of approximately $700 billion. These are extraordinary dollar amounts and show the program is winding down but the work is not yet finished. The SBA cannot wipe its hands of this program and must stay engaged with this Committee as we continue our oversight responsibilities. This sentiment also needs to be emphasized to the Department of the Treasury who played a significant role in PPP by onboarding numerous new lenders. And as many new Committee Members have pointed out, Treasury Secretary Yellen is required by law to testify before the full Committee on the implementation of the COVID-19 programs, specifically the PPP. Unfortunately, 325 days past the date, the challenges small businesses face still haven't risen to the level of importance for the Secretary to appear. This cannot stand. In the State of the Union, the President stated that we are going after the criminals who stole billions in relief money meant for small businesses and millions of Americans. How can we believe that statement if appearing before our Committee is too difficult a step to take? Nevertheless, my colleagues are eager to go after wrongdoers and make necessary changes. And I hope the Treasury Secretary will testify on this matter soon. This Committee has a host of issues left to examine regarding PPP, including fraudulent behavior. Numerous articles and audits have highlighted trends connecting fraud to certain FinTech lenders. And it is crucial we understand these lenders' roll within the programs, and how they interacted with small businesses, determined eligibility, and if they adequately protected American taxpayer dollars. Fraud is unacceptable and we must address illegal behavior and ensure we recover improper dollars efficiently. Additionally, we need to learn more about how the SBA conducted PPP loan reviews. For example, if ineligible businesses entered the PPP, I am left to wonder how they were treated under the loan forgiveness process. We must find answers to these essential questions. Moreover, any PPP conversations should include the lenders on the ground delivering this program. And that is why I am looking forward to today's discussion with not only the Government Accountability Office, which has provided extensive oversight throughout, but also with a community bank lender who is on the frontline keeping businesses in his community alive. In Text 24, our private lenders helped disburse over 40,000 loans worth well over $4 billion. In the numerous roundtables that I have held with small business owners from around north Texas, besides a tough labor market and skyrocketing energy prices, a common theme is how PPP was a lifesaver during the pandemic. And while American small businesses had been ready to grow their business without government handouts, our work in Congress is to ensure every last relief dollar was appropriately spent and that must continue. And with that, Mr. Chairman, I look forward to our continued work on this matter, and I want to thank you for holding this hearing. I yield back. Chairman PHILLIPS. Thank you, Ms. Van Duyne. The gentlewoman yields back. With that, I would like to introduce our only witness on today's first--our best and only witness today on our first panel, Mr. William Shear, the Director of Financial Markets and Community Investment for the U.S. Government Accountability Office. A frequent panelist representing GAO before us, he leads GAO's work in community and economic development, small business, and SBA's COVID-19 response programs. Mr. Shear joined GAO more than 20 years ago and is a dedicated public servant. He has a master's degree in public policy and a PhD in economics, both from the University of Chicago. He also served as an adjunct faculty member in the graduate program in city and regional planning at the University of Pennsylvania. We welcome you back, Mr. Shear, and afford you now 5 minutes for your opening statement. STATEMENT OF WILLIAM SHEAR, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. SHEAR. Thank you. Chairman Phillips, Ranking Member Van Duyne, and Members of the Subcommittee, I am pleased to be here this morning to discuss our work on SBA's Paycheck Projection Program, or PPP for short. While my statements before this Committee on SBA's emergency loan programs in April 2021, and previously in October 2020, focused on program administration, controls, and oversight, and fraud risk management, my statement today is about how PPP changes SBA and Congress made affected the characteristics of participating lenders and program recipients. For this work, we relied on SBA loan level PPP data, as well as county level business statistics and American community survey data from the U.S. Census Bureau. We analyzed PPP loans over three application periods, April 3 through 16, 2020, April 27 through August 8, 2020, and January 11 through May 31, 2021, which we refer to as Phases I, II, and III, respectively. Over this period, Congress provided commitment authority of about $814 billion. In summary, early lending during Phase I favored larger and rural businesses. Specifically, 42 percent of these early loans went to larger businesses, which we defined as those with 10 to 499 employees. Larger businesses were more likely to have a preexisting lending relationship with a bank. Businesses in rural areas also received a high share of these early loans relative to their representation among all small businesses. Traditionally underserved businesses, in particular, businesses owned by self-employed individuals, members of minority groups, women, and veterans faced challenges obtaining loans, prompting Congress and SBA to make a series of changes shortly after the program launched. For example, SBA admitted about 600 new lenders, including non-banks, developed guidance helping self-employed individuals participate in the program, targeted funding to minority-owned businesses in part through community development financial institutions. Through the Paycheck Protection Program and Health Care Enhancement Act passed in April 2020, and the Consolidated Appropriations Act passed in December of 2020, Congress established additional set-asides for businesses that applied through CDFIs and other specialized lenders. Lending to traditionally underserved businesses increased noticeably after these changes were implemented. By the time PPP closed in June 2021, lending in traditionally underserved counties was proportional to their representation in the overall small business community. While lending to businesses with fewer than 10 employees remained disproportionately low, it increased significantly over the course of the program. Chairman Phillips and Ranking Member Van Duyne, I would be happy to respond to any questions you or the panel would like to ask. Chairman PHILLIPS. Thank you, Mr. Shear. I will begin by recognizing myself for 5 minutes. The GAO found that banks made more than 93 percent of the loans during Phase I, which I recall was the first 2 weeks of the program. Did GAO determine how much of that 93 percent went to existing clients versus new clients of those banks? Mr. SHEAR. We refer to research by others as far as the tendency---- Chairman PHILLIPS. Mm-hmm. Mr. SHEAR.--to serve existing clients, but we don't have information that--to answer that question as far as how much of it went to existing versus new clients. Chairman PHILLIPS. Okay. As you are well aware, we made several changes to the program midway. Some of them included CDFI set-aside, the 14-day exclusivity period for microbusinesses, and beginning in 2021, the loan calculation rule changes for Schedule C filers and others. Of those changes, and perhaps others, which of those were most effective in helping improve access, especially for underserved businesses, in your estimation, of the modifications that we made? Mr. SHEAR. The modifications that I tend to focus on the most are the inclusion of CDFIs and actions taken to help smaller banks participate. Those are the two that stand out for me. So, I don't want to take anything away from the other inclusion that occurred over the period. But that is what stands out the most to me. Chairman PHILLIPS. I appreciate it. You know, we know PPP was designed to expediently distribute funds with oversight and fraud protection occurring during the forgiveness phase. In your view, did Congress find the appropriate balance between expediency and fraud prevention? And what aspects of PPE are worth further research in that respect? Mr. SHEAR. Our concern from the beginning of the program was the lack, we called it limited controls. So, I will use the words controls and oversight kind of interchangeably---- Chairman PHILLIPS. Okay. Mr. SHEAR.--and the lack of, really, what we call sound fraud risk management. So, that has been a concern from the beginning. As I have said before this Committee before, that we put the emergency loan programs on GAO's high-risk list because of our concerns of the lack of oversight, the lack of controls in place, the lack of sound fraud risk management, and also, findings from financial statement audits, and just high rates, the inability to estimate improper payments. So, these are all concerns of us. So, it is one that is our focus has been on SBA's administration of the program. So, those are the things that stand out the most for us in terms of we think the oversight of the program has improved over the period from the initial period. But we still have concerns with the oversight element of it. We are still concerned about the lack of comprehensive fraud risk management. Chairman PHILLIPS. Are there any specific recommendations you might share with us in the Committee relative to some of that oversight and fraud prevention that we could still yet at least call to their attention, or perhaps equally importantly, prepare for in the future? Mr. SHEAR. The most progress that has been made, we made a recommendation in our first GAO-wide report in June of 2020, to really put controls in place, to really have oversight to protect the integrity of the program. So, it is dealing, you know, kind of broadly with how do you monitor borrowers to make sure they are eligible, that they are the intended beneficiaries, and things of that nature. On that, there is a master review plan that has gone through different iterations. It was recently updated, but it has largely been intact for the last, I would say, 12 to 14 months. That is one where there has been some progress made in terms of using largely consultants---- Chairman PHILLIPS. Yeah. Mr. SHEAR.--in terms of automated reviews, manual reviews, to oversee it. So, it is like there has been improvement in that area. We are still looking for some greater movement on that. And the one area that we still are involved in discussion with SBA about is the lack of looking at what is called the self-certification for economic necessity. So, we have that. On fraud risk management, we are very concerned about it because we made two recommendations in 2021, having to do with fraud risk management to really to do an assessment of fraud risk to follow GAO's best practices for fraud risk management, which include naming a lead entity to do that and of specifying what is called a fraud risk tolerance. So, we have been looking. We have been calling for that and to have an action plan to deal with the fraud issues. It was just in the last few weeks, basically, that SBA has stood up a lead entity to lead fraud risk management. Chairman PHILLIPS. In the last few weeks, okay. Mr. SHEAR. Yeah, just in the last---- Chairman PHILLIPS. My time---- Mr. SHEAR.--few weeks. Chairman PHILLIPS.--is, unfortunately---- Mr. SHEAR. I am sorry. Chairman PHILLIPS.--my time is well expired. Mr. SHEAR. I am sorry for the long answer. Chairman PHILLIPS. But it was important to get that answer. So, thank you. Mr. SHEAR. But this is a continuing concern of ours. Chairman PHILLIPS. Okay. Thank you, sir. With that, I yield to our Ranking Member, Ms. Van Duyne, for 5 minutes. Ms. VAN DUYNE. I appreciate that. And I actually want to continue exactly what you were talking about. So, I feel like you felt you had to truncate that answer. I am really concerned about the lack of fraud risk management what you are talking about with the inability to be able to find some of these fraudulent payments. Can you give us a little bit more detail? I mean, when we say the lead entity, who is that? Are you somewhat confident that they are going to be able to actually do the job of providing that oversight? Mr. SHEAR. We are at least glad that they named an entity, basically. Ms. VAN DUYNE. So, who is the entity? Mr. SHEAR. It is like a fraud risk council within SBA. Ms. VAN DUYNE. Okay. Mr. SHEAR. Okay. So, they established a council. So, there is a lead entity with the responsibility and the authority. So, there is an entity that is on paper that kind of corresponds to what we would call a lead entity in charge. They are supposed-- -- Ms. VAN DUYNE. Up until that point, was there a concern that there was just no accountability within the organization? Mr. SHEAR. It was like, certainly, there have been extensive looks at fraud, especially by the IG, by the PRAC, and others. There has been a look at it, but the concern is the lack of a dedicated entity, and the idea that fraud risk management involves a very comprehensive and strategic approach. And what didn't happen at the beginning of the program and really hasn't happen yet is to really come up with an action plan. So, the way I would characterize it through the oversight function, it isn't like SBA's going, you know, is running blind that they don't know, you know, what some of the, you know, as far as what some of the problems are with borrowers that might not be eligible. So, they are not flying blind. But what we are looking for is a more comprehensive approach, a more strategic approach, a more informed approach to really to figure out the patterns of fraud risk--of fraud that is going on and to manage that risk. We recognize in an emergency that there--it is logical to allow some tolerance for fraud in the program. There can be--it recognizes that our fraud risk framework that in response to an emergency---- Ms. VAN DUYNE. But you are going to have to ask the question like, I mean, how much fraud is acceptable? I mean, I think---- Mr. SHEAR. We don't---- Ms. VAN DUYNE.--from our position---- Mr. SHEAR.--have a measure. Neither does---- Ms. VAN DUYNE.--we would say none. Mr. SHEAR.--neither does SBA. But I know the tendency is to say no fraud is acceptable. And I can say that as a principle, we don't want fraud in any program. But there is the notion that if fraud risk exists, it is just like it might be that strategically that there might be a reason to tolerate, you know, more exposure to potential fraud---- Ms. VAN DUYNE. Well, part of that solution seems---- Mr. SHEAR.--in a program than in a regular program---- Ms. VAN DUYNE. Yeah. Mr. SHEAR.--considering the emergency situation. It is similar to the situation---- Ms. VAN DUYNE. No, and I am sorry. Mr. SHEAR. Yeah. Ms. VAN DUYNE.--but I have very limited time. Mr. SHEAR. I am sorry. Ms. VAN DUYNE. I have got like a bunch of questions that I want to ask. Mr. SHEAR. Okay. Thanks. Ms. VAN DUYNE. And I appreciate you going on that. But looking at the potential for fraud, have you conducted any analysis on potential fraud between banks and non-bank lenders when it comes to the program? And has your research found out when it comes to oversight controls in place at the SBA, have you been able to root out that fraud? So, is there a difference between banks and non-banks, and where did SBA play a role in that? Mr. SHEAR. We recognize that there are certain concerns that have been raised about FinTech lenders. Ms. VAN DUYNE. Correct. Mr. SHEAR. Our forensic auditors have ongoing work that still is looking into the issue as far as it is largely focused on SBA's practices, but it also considers the different types of lenders. So, we have ongoing work on that. One of the things I would like to emphasize is that it will probably be years until we know how much fraud has occurred in this program. And so, what we point to an awful lot are from real time auditing by the IG community and others---- Ms. VAN DUYNE. Mm-hmm. Mr. SHEAR.--is that what we look for is how much potential fraud is out there. We observe a high-level---- Ms. VAN DUYNE. Do we have a number for that? Mr. SHEAR. There are different numbers that have been used that we have cited from the IG and others as far as how much-- -- Ms. VAN DUYNE. What potential fraud would you estimate is out there right now for this program? Mr. SHEAR. I would have to go back and---- Ms. VAN DUYNE. Can you give me a range? Mr. SHEAR. I can't answer it for the record, no. No, because this is one maybe a year ago when I was really discussing fraud risk, I would be better prepared. I---- Ms. VAN DUYNE. But you are saying those numbers are public? Your organization---- Mr. SHEAR. Yeah. Ms. VAN DUYNE.--SBA has made it public? Mr. SHEAR. We have reported multiple times. We refer to the IG report---- Ms. VAN DUYNE. But you don't know what the latest numbers are at all? Mr. SHEAR. No. I don't have the latest numbers in front of me. I could go ahead---- Ms. VAN DUYNE. Do you know what the difference between what is acceptable? What you are claiming would be acceptable compared to what we are looking at right now? Mr. SHEAR. We have no standard for acceptable. But what we are saying that for SBA managing fraud risk it is reasonable to think about how much risk are we willing to take. Ms. VAN DUYNE. I am just wondering what the delta is. Mr. SHEAR. Yeah. Ms. VAN DUYNE. But I am out of time. Mr. SHEAR. Yeah, okay. Ms. VAN DUYNE. Thank you, sir. Chairman PHILLIPS. The gentlelady's time has expired. Perhaps we can come to a second round too. With that, I am pleased to recognize the Chairwoman of the Small Business Committee, the gentlelady from New York, Ms. Velazquez, for 5 minutes. Ms. VELAZQUEZ. Thank you, Mr. Chairman. Thank you, Mr. Shear, for being here today. I am happy to see GAO validates my initial assertion that more sophisticated firms that had better access and those without preexisting relationships couldn't get loans approved no matter how hard. First, they were not able to even have contact with those banks. And then if they did, those loans were not approved. So, your report suggests that program changes made by Congress and SBA helped to increase access for the intended businesses and counties. So, my question to you is, would empowering CDFIs and MDIs and getting them more involved with SBA lending help address gaps in the business lending market identified during PPP? Mr. SHEAR. You are asking a really good question. And it is very clear, as you said, that the changes made by the Congress and the SBA have led to greater access for especially underserved borrowers. So, it is greatly improved in this program. And I want to go back to what I said about maybe some tolerance for fraud, as far as, as a strategy is that the considerations involved in an emergency loan program and knowing how devastating the pandemic, the effects have been on small businesses, especially the most vulnerable and the smallest small businesses that might not have access to capital. It is a different consideration when you start bringing in more lenders and targeting assistance. I think it is a more complicated story if you are talking about let's just say during normal times, let's just say the 7A program as far as there are certain questions like we have followed the Office of Credit Risk Management very closely over the years. There are certain other considerations that come into effect. Ms. VELAZQUEZ. And I know that---- Mr. SHEAR. Yeah. Ms. VELAZQUEZ.--our first consideration must be to be safe stewards of taxpayers' money, right? The fact is we haven't seen fraud committed by CDFIs and MDIs. So, that could be another report or investigation that could be. But the report mentioned potential fraud in the COVID relief programs. And while FinTech lenders were essential in helping small businesses access PPP loans, research has shown FinTech originated PPP loans are more likely to be associated with fraud. To balance the interests of safeguarding taxpayers' dollars while improving the reach of SBA lending programs, how cautiously should we proceed with non-bank lenders accessing SBA guaranteed lending? Mr. SHEAR. My answer for an emergency program like PPP is that you especially have the underserved businesses that were really adversely affected and particularly businesses owned by members of minority groups. Ms. VELAZQUEZ. Mm-hmm. Mr. SHEAR. And there might be--it might make more sense that the FinTech lenders have algorithms that are, you know, considered color blind, things of that nature. They have served that segment of the market more heavily than some of the other lenders have. So, the consideration of pandemic, I think, is different. I will just state the consideration I think if you are talking about the 7A program and during normal times, is to focus on the Office of Credit Risk Management. And we have seen improvements in that program over the years. We have certainly evaluated it many times from its creation. And there have been improvements in their program. I think the focus should be on the ability of that office to oversee the new lenders. Ms. VELAZQUEZ. Okay. Thank you. Many view the PPE as a stress test of the small business lending market. And GAO's research and testimony from other panelists show where the gaps in the program are--were. Do you agree that PPP was a stress test of the small business lending market and that we should be learning lessons based on where the gaps are shown to be? Mr. SHEAR. There are certainly lessons learned. One is that our next enclosure on PPP in our April report will get into lessons learned for let's just say future emergencies. Ms. VELAZQUEZ. All right. Mr. SHEAR. But there is also certain--it casts a light on who is served by whom in a more general way. So, I think it is something we should all be mindful of. Ms. VELAZQUEZ. Thank you. I yield back, Mr. Chairman. Chairman PHILLIPS. The gentlelady yields back. And I am pleased to recognize the Ranking Member of the Small Business Committee, the gentleman from Missouri, Mr. Luetkemeyer, for 5 minutes. Mr. LUETKEMEYER. Thank you, Mr. Chairman. And I want to follow-up on your opening remarks with regards to the powerful speech and video that we saw this morning from President Zelenskyy. I agree that it is a very unnerving situation. This is not a video game that is going on. This is a real-life situation with people living and dying and being hurt because of war. I mean, you take it very seriously, and I hope the administration does just that. That was a sincere request this morning and I hope they take it sincerely and act on it accordingly. With that, thank you for bringing this topic to us this morning. Mr. Shear, welcome again. I always enjoy your discussions with us. A lot of the things I was going to talk about have been discussed already. But I want to talk about a little bit with regards to the IG report that talked about some of the controls that they were requesting to be put in place. And as I was talking with them and actually off the record and on the record here in Committee a couple of times, they were--I asked them, you know, well, you have identified fraud. You identified problems within the SBA's administration of these programs. Which by the way it is a Treasury program. SBA is administering it. Let's get that straight. Make sure we understand that. And throughout the discussion, I kept asking the question, so, you are giving them processes, and protocols, and new procedures, are the leaders of the SBA, are they implementing those? And the answer was, yes. And so, I said, well, what is the problem, then? And they said, oh, the staff is not implementing it. The staff is not living up to the--and operating within those procedures. Did you find that same thing that staff didn't seem to be willing to comply with the processes and procedures that were put in place? Mr. SHEAR. We haven't seen evidence of that. But we haven't, you know, focused that closely as far as the processes followed by the employees. But what we have focused on have been the different, you know, automated checks, manual checks, and the like. And so, that is what we---- Mr. LUETKEMEYER. Well---- Mr. SHEAR.--focused on. Mr. LUETKEMEYER.--you sort of alluded to something a minute ago with respect to the reaction of SBA to your suggestions saying that they, in essence, and I don't want to put words in your mouth here, but basically you said they didn't take some of your suggestions seriously. They didn't act on them. They didn't put everything in place that you suggested. You know, it taking a long time for them to actually implement some of these things. So, do you think they take your recommendations and the IG seriously? Because it has taken until now and you just said a minute ago that just 2 weeks ago they started to implement some of these things. I mean, it looks to me like we are really not taking anything seriously from the folks who could actually be helping them clean up their mess. Mr. SHEAR. The things that stand out for us and it becomes part of discussions that I and my colleagues have had with SBA and that the Comptroller General has had with the administrator, which is the designation of the high-risk designation. And we are concerned that it has taken so long to set up an entity to manage fraud risk. It is very late in the game to be doing that. And so, that stands out. And there is also concerns that has come out of the financial statement audits from the last 2 years that there are concerns about the accounting and the internal controls pointed out by that. And those really stand out for us as something that we wish that action would have been taken more quickly in both areas. Mr. LUETKEMEYER. Well, your statement there, sir, I thank you for it, is that it has taken 2 years to get something done. I mean, it would appear to me, I mean, if I am managing the agency, you know, it may take, you know, 6 months to a year to get some new changes in place, get people used to the new processes, but 2 years? It looks to me like they are just saying no thank you. We are going to work on this in our own time. Either that or they are so overwhelmed with the process and all of the work they are having to do that they can't get to it. Is that a possibility? Mr. SHEAR. You bring up a very real possibility. And one of the things that I would point out is that you do have this master review plan in place as far as oversight. But it is a little bit more of a reactive policy. They learn from what they see from, you know, from the focus of that master review plan and we are really looking for something more strategic to address these issues. Mr. LUETKEMEYER. Well, I hope instead of learning---- Mr. SHEAR. And that has---- Mr. LUETKEMEYER.--from what they---- Mr. SHEAR. That has---- Mr. LUETKEMEYER. Okay. Mr. SHEAR. That has taken a long time. Mr. LUETKEMEYER. Instead of learning from what they see, I hope they listen to what you say. Mr. SHEAR. Okay. Mr. LUETKEMEYER. Because it would certainly be helpful to them. I have just got a couple seconds left and I just wanted to make one more comment with regards to FinTechs. I agree with Chairman Velazquez that this is a concern. It appears that that is where most of the fraud was in the PPP program. Idle programs are whole another animal. But it does appear that from the statistics we saw, that the FinTech folks were actually not very good at protecting the integrity of the program. Would you agree with that statement? Mr. SHEAR. I don't think there is enough information available to draw that conclusion. So, maybe we are just---- Mr. LUETKEMEYER. You don't have---- Mr. SHEAR.--we are cautious. Mr. LUETKEMEYER. You don't have any idea that the losses were so significant compared to the banks and credit unions in this instance because they have a know your customer rule in place that the FinTechs don't? That it didn't protect the ability of the banks and those folks to do their job right versus the FinTechs? Mr. SHEAR. Let me just make the observation at a very simple level. We looked at lending over three periods of time and there were certainly evidence of significant potential fraud in the program in all three phases, and---- Mr. LUETKEMEYER. But you haven't quantified it yet. Mr. SHEAR. We haven't quantified it and, again, I will go back to the statement---- Chairman PHILLIPS. The gentleman's time---- Mr. LUETKEMEYER. Are you---- Chairman PHILLIPS.--has expired. Mr. LUETKEMEYER. Are you keeping---- Mr. SHEAR. We don't know---- Chairman PHILLIPS. Mr. Shear, we have to wrap this up. Mr. SHEAR.--how much fraud. We don't know how much--we will not know for a while how much fraud has occurred in the program. Mr. LUETKEMEYER. I think it is very important that we quantify that. And I thank you for your testimony and I thank the Chairman for his indulgence. Thank you. Chairman PHILLIPS. The gentleman's time has expired. Now, I am pleased to recognize the Vice Chair of the Committee and the Chairman of the Subcommittee on Contracting and Infrastructure, the gentleman from Maryland, Mr. Mfume, for 5 minutes. Mr. MFUME. Thank you very much, Mr. Chairman. I want to thank you and the Ranking Member for convening what I consider to be a crucial hearing. Mr. Shear, thank you for being with us this morning. As we all know, if I can deliberately be redundant, the Paycheck Protection Program supported small businesses across our nation during the pandemic by allocating, as we know, $800 billion to cover payroll and operational costs. And it was such an incredible program that it lifted businesses that were in the most need and kept them afloat. So, you can understand why there is so much concern here about fraud and fraud assessment and how do we not do the same thing again. I believe, however, that to truly invest in a program like this, we have to be compliant to our oversight and our fiduciary responsibilities as a committee, and not only applaud the success, but to also point out failures where we see them. And the driving force behind the program was paychecks for employees. It was very simple. Yes, we care about every aspect of business and operations, but the program was designed to protect employees. So, as you might imagine, some of us have been hearing stories that just go against the grain. Mr. Shear, there is a hotel in my district, the Merriweather Lakeshore Hotel that received a PPP loan for almost $1.1 million on April 10 of 2020. On April 15, 5 days later, the Merriweather Lakeshore Hotel fired 100 of its employees and then closed to the public. According to PPP regulations, the hotel, correct me if I am wrong, was required to spend 60 percent of its loan on payroll costs. Yet it remained closed from that point during the entire period after that. And then based on information provided to me, the hotel refused later, a year later, to hire 98 of the 100 people that it had let go who had been out of work for all of that time. So, I am just trying to get some sense about this notion of give you money, take money. Give you money under one claim, and then under that same claim, in this case, 100 people are let go a few days later. So, could you tell me whether your research as shown whether this industry, the hotel industry, or other industries that have received cumulatively billions of dollars through this program, have also failed to return workers back to jobs after receiving the money to protect the paychecks of those workers. Mr. SHEAR. Our work hasn't drilled down into the very important issue that you raise. What our work has identified is the idea that this is a program out of the starting gate that relied heavily on borrower self-certifications. So, I can't speak to the hotel, even though I will mention I live in your district in Baltimore. But I know what hotel you are talking about. Mr. MFUME. God bless you. You are a great American. Mr. SHEAR. Okay. Thank you. But I will say that I can't comment on the one hotel or any specific industry. But we are concerned how much the program has relied on self- certifications and this is why we have followed so closely the oversight that has been put in place to examine whether borrowers are complying with the requirements of the program and whether the borrowers are, in fact, eligible for the program. So that is where our focus has been. Mr. MFUME. Well, I hope now that you have this example based on the information that has been provided to me, that someone at GAO will look into this. I know you are not the Inspector General, but all of us are going to get instances where we have these strange, strange kind of situations where people receive money, they fire people, and then they close down, and then the loan is ultimately forgiven, as this one was a year later. I would appreciate it if you could look into that and if you could let myself and, of course, the Committee know of your response. Mr. SHEAR. Okay. I would be glad like as far as questions you want to put in our questions for the record. We normally don't comment on one entity, but we will see what we can do in response to your question. So, I thank you. Mr. MFUME. Thank you. And I hope you will take it as a constituent request. Back to you. Mr. SHEAR. Okay. Mr. MFUME. Thank you, Mr. Chair. Chairman PHILLIPS. The gentleman yields back. And now I recognize the Ranking Member of the Subcommittee on Economic Growth, Tax, and Capital Access, the gentleman from Pennsylvania, Mr. Meuser, for 5 minutes. Mr. MEUSER. Thank you, Mr. Chairman. Thanks to the Ranking Member. Thank you, Mr. Shear. Before I get started, I just want to go on record quoting our Chairwoman Velazquez last year when she stated how unfortunately Treasury Secretary Yellen has declined to appear before us in complete disregard for the law, which requires her to do so. That was last May that that comment was stated and Secretary Yellen has still failed to appear. Ranking Member Leutkemeyer has mentioned it many times in most meetings. It is just quite irresponsible and it runs counter to the law. So, it is kind of hard for us to, you know, you know, explain that, and it is not our job to explain it. I think maybe the Secretary could explain it when and if she appears here. But moving along. So, PPP did a tremendous amount of good. There is no question. It was a lifeline to thousands of businesses throughout my district and elsewhere. The Treasury Department at the time was very accessible. We were on the phone with then Secretary Mnuchin often, you know, getting it going. Many of us spent countless hours, 12, 13, 14 hours a day probably in the first 2 weeks of its inception dealing with banks, dealing with businesses, and helping it through. So, but the bad news is the level of fraud. Now, the PPP, the numbers that I have and I don't know, Mr. Shear, you can-- it is about $4 to $5 billion that is estimated, in fraud in the PPP out of--what was the total, $840 billion? Something of that nature. So, you know, $4 billion is a lot of money to say the least. But the problem lies in the EIDL. And the EIDL has, I believe the total EIDL was in the neighborhood of $260 billion and yet, nearly $80 billion in fraud. Now, we all know that the PPP was done in cooperation with the SBA and local banks, primarily local community banks. The EIDL done straight through SBA. So, clearly, the know the customer, right, KTC, is quite imperative for a program to have any integrity, right? I mean, that is almost like the simplest of answers, simplest of solutions. So, I am certainly hoping the GAO and moving forward the SBA that we recognize this and do what we can do to, you know, that we do things in such partnership with the KTC ideas being followed. So, I will just ask you this. As you are working on integrity and quality and such, are you, from the GAO standpoint, is the SBA implementing for loans and forgiveness programs right now more on the quality end of things, such as in systems? Or are they hiring people? What, Mr. Shear, is being done to fortify the process as well as bring a higher level of scrutiny to the integrity of the overall system, as well as assure our forgiveness program is being done in a manner that those who deserve forgiveness are receiving? What are we investing in? What are we--how are we improving? Mr. SHEAR. Yes. I will refer to we have reported, you know, on these GAO-wide reports, we have had quite a few and a lot of enclosures on the PPP program. We had a standalone report last summer, in addition to the one I am testifying on today, having to do with controls. And so, the--what I will point to for PPP, in particular, is we--oh, we also had a standalone report on SBA's use of supplemental appropriations to help support the emergency loan programs. So, we know that there is heavy reliance on contractors as part of the oversight. So, we know that Guidehouse is very much front and center in terms of, among other things, automated controls. We know that Deloitte is very heavily involved. We know Goldschmidt is very heavily involved. And it is a mix of the automated reviews, the manual reviews, and the overall checks for kind of like the quality of that system. So, that is what we observe as where there has been a oversight structure that has been in place for some period of time. Mr. MEUSER. I know that. Do you agree that the system with the PPP in cooperation with community banks proved far more effective and efficient than a straight EIDL loan through the SBA? Mr. SHEAR. With EIDL---- Chairman PHILLIPS. A quick answer, sir. Our time has expired. Mr. SHEAR. Yeah, with EIDL, it is--there is another set of circumstances and there is another set of contractors that are involved with it. But I will go back to just my observation that we don't really know, we won't know for a long time how much fraud has occurred in both programs. And I would want to point to the oversight structure---- Chairman PHILLIPS. Okay. Thank you. Thank you, Mr. Shear. Mr. SHEAR. I would want to point to the oversight structure for both. Chairman PHILLIPS. All right. Thank you. The gentleman's time has expired. I am going to give an award to the first among us who stays within his or her 5 minutes, myself included. With that, I am pleased to recognize the Chairwoman of the Subcommittee on Economic Growth, Tax, and Capital Access, the gentlelady from Kansas, Ms. Davids, for 5 minutes. Ms. DAVIDS. Thank you, Chairman and to the Ranking Member for holding this hearing today. You know, the Paycheck Protection Program was absolutely an essential lifeline to small businesses across the country during the height of the pandemic. And small businesses in the Kansas 3rd received over 2,000 PPP loans totaling somewhere around $820 million. And that critical funding really helped small firms in the 3rd District that I represent maintain their rent and payroll while they learned how to operate and adjust to extraordinary challenges that the pandemic presented. Unfortunately, we did see that, you know, larger banks overlooked the smallest businesses, those owned by minority or veteran and women-owned businesses while they were originating the PPP loans. And, you know, in fact, in your testimony, or maybe in response to one of the questions, you mentioned, Mr. Shear, that the community-based lenders like CDFIs were instrumental and that that was a key piece of the modifications that we made. I am curious, Mr. Shear, what factors, from your point of view, led community-based lenders to being so much better at reaching those businesses? Mr. SHEAR. Thank you for the question. I think that you look at the missions of entities such as the CDFIs and you can see that they have a focus on what is often called the underserved community of small businesses. So, I would point to that. As far as the smaller community banks, you know, I would say that especially when you look at rural areas, I think that the smaller community banks really played a role. So, here I am not talking about specialized lenders, per se, but I think that a lot of it is that what is the--what is kind of like the mission of---- Ms. DAVIDS. Mm-hmm. Mr. SHEAR.--the various entities. With banks, you have a little bit more. And I am not saying this to criticize banks, but you have a situation where serving your customers it is a huge incentive to serve your customers. And that sometimes can lead to serving customers that are your existing customers that and aren't as focused on those customers, those small businesses that might be underserved. Ms. DAVIDS. So, are we seeing, now that, you know, the PPP is closed to new applicants, but we are seeing applications coming in for the forgiveness portion of these programs, of this new program, and I am curious if you are seeing, again, a similar kind of gap as it relates to the traditionally underserved or disadvantaged business entities. Mr. SHEAR. We did some analysis around just like we did for in, you know, that is in my statement today, for loans that were made, looked at the forgiveness process. And what the biggest thing that has come out of that is the very large percentage of forgiveness applications that have been approved. And so, nothing--we didn't report on it. We don't plan to report on it, but I will just state that nothing really stood out in terms of whether the forgiveness process itself and to say was in some way could be called detrimental to any particular group. Ms. DAVIDS. Okay. Well, I appreciate your taking the time to testify before our Committee today. And, Mr. Chair, I yield back. Chairman PHILLIPS. The gentlelady yields back. And now, I recognize the gentleman from Florida, Mr. Donalds, for 5 minutes. Mr. DONALDS. Thank you, Mr. Chairman. Mr. Shear, according to the PRAC Small Business Administration Paycheck Protection Program Phase III Fraud Controls Report in January of 2021, the SBA OIG reported that nearly 55,000 PPP loans worth about $7 billion went to potentially ineligible businesses or fraudulent recipients. The report goes on to say that 100 percent of the case--in 100 percent of the cases the PRAC reviewed included one or more false statements on the PPP loan application that would have made the applicant ineligible. The PRAC has said that the SBA could have used IRS data to determine improper payments prior to disbursement. That opportunity to conduct pre-disbursement checks is no longer available. Have you considered the use of available commercial data like business information such as payroll, utility, or rent information to conduct reviews or audits of PPP loans? Mr. SHEAR. Our forensic auditors who really take the lead and have worked with us very closely on the fraud issues certainly use what we often call data analytics in the use of different datasets, including it might be from the Postal Service, the Do Not Pay list out of Treasury, and various other types of databases that are available to examine those issues. And certainly, the PRAC and the SBA IG have been very involved in those types of examinations. At GAO, it is really our forensic audits group that we work with closely have taken a close look and continue to take a close look at certain patterns that are present that might suggest fraud or certainly, where the flag goes up that there could be potential fraud. Mr. DONALDS. Okay. All right. So, looking forward, would you recommend that any future relief programs similar to PPP or other pandemic programs leverage available third-party data for verification purposes to prevent fraud, abuse, mismanagement, and also to reduce the need of costly after-the-fact remediation or enforcement? Mr. SHEAR. Absolutely. Mr. DONALDS. Mm-hmm. Mr. SHEAR. The whole role of data analytics of examining and coming up with a structure and in this case, it would have been great to come up with a comprehensive approach using different data sources to ensure the integrity of the program, but really to ensure that the fraudsters don't get it. The shift now has been more toward because of the passage of time, is, you know, when I was before this Committee last year, our emphasis was on preventative controls, and that is exactly what you are talking about. Preventative controls are great. Now, we are in a situation, meaning the IG community, SBA, and others where you are trying to chase down fraudsters. And that is a much more costly kind of approach to the fraud issue than putting in preventative controls to begin with. Mr. DONALDS. Thank you, Mr. Chair. One final statement just more for, you know, our colleagues here on the Committee. When it comes to, in my view, when it comes to the role of CDFIs versus traditional commercial banks versus community banks, one of the things we have to always remember is that CDFIs have a specific mission that has been granted, frankly, by us. Commercial banks and even credit unions that used to have a specific mission, they have obviously had mission creep in their original mission. But the community banking industry and the national commercial banking industry and even the super regionals, one of the issues that they do face is the regulatory burden that has been unleased on their industry by us here in Congress. And so, if they have to deal with significantly higher regulatory burdens, specifically in the community banking space, which is why the community banking space has decreased substantially over the last decade in the United States, that is the reason why so many of our smaller businesses struggle with access to capital. And that is why you have new industries like FinTech who are coming up to fill that space. That is in direct response to the regulatory environment that has been unleashed in banking since the passage of Dodd-Frank back in 2009. So, I think it is important for the Members as we look at what has happened during the pandemic and access to capital issues, that we understand it is the regulatory environment that has fed industries like FinTech and these other opportunities to flourish. I yield back, under time, by the way, Mr. Chairman. Chairman PHILLIPS. Duly recognized, Mr. Donalds, as Mr. Mfume also, and also Ms. Davids gets an award. Seeing no other questions, Mr. Shear, we want to thank you for your time and your dedication to this very important work. So, we now excuse you and we will just take a few moments to set up our next panel. Thank you. Mr. SHEAR. Okay. Thank you very much. Chairman PHILLIPS. All right. We want to welcome our witnesses on our second panel today. I will take a minute to introduce each of you before your testimony. Our first witness on panel two, Dr. Robert Fairlie, Professor of Economics at the University of California, Santa Cruz. Professor Fairlie has testified before Congress numerous times on policy issues related to small businesses and we are thrilled to have him before us again today. Professor Fairlie's most recent work focuses on third and final round of PPP, which ran during the first half of 2021 and successfully targeted program funds to underserved businesses. We look forward to hearing about this important research and the implications it has on SBA's non Covid business loan programs. We welcome you, Professor Fairlie. Our second witness is Dr. Manju Puri. Professor Puri is the J.B.--oh, I never know how to say--Fuqua--sorry--Fuqua Professor of Finance at Duke University's Fuqua School of Business in Durham, North Carolina. She and her co-authors' research looks specifically at the intermediary supply effects of using banks as the primary delivery mechanism for PPP loans and how it contributed to the prioritization of big businesses early in the program. Professor Puri has also served as a senior advisor for the FDIC center for financial research. We welcome you, Professor Puri. Our third witness is Dr. Iryna Demko. Dr. Demko is a research associate at the Center for Economic Development at the Maxine Goodman Levine College of Urban Affairs at Cleveland State University where she specializes in economic impact studies. In addition to reviewing PPP loan data, Dr. Demko and her research team also conducted a series of interviews with PPP borrowers of all sizes in Northeast Ohio. We look forward to hearing how the PPP loan data you observed tracks with the anecdotal evidence that you received. We welcome you, Dr. Demko. And now I would like to yield to the Ranking Member, Ms. Van Duyne, to introduce our final witness. Ms. VAN DUYNE. Thank you, Mr. Chairman. Our next witness is Robert Barnes. Mr. Barnes is the president and chief executive officer of PriorityOne Bank in Magee, Mississippi. PriorityOne Bank is a community bank with over a dozen locations throughout Mississippi and Mr. Barnes is testifying on behalf of the Independent Community Bankers of America, also known as ICBA. Mr. Barnes has a long history of serving Mississippi businesses and communities as he started at the bank nearly 40 years ago. During this time he has held numerous positions and has had leadership roles. He is currently on the board of the Mississippi Bankers Association and is the Chairman of ICBA's legislative issues committee. Additionally, he holds membership on numerous economic, health, and education boards. Mr. Barnes also served on the governor's pandemic economic response team, known as Restart Mississippi. Mr. Barnes, welcome to the Committee. Your experience and background as a community banker will be invaluable as we have this conversation today. I yield back. Chairman PHILLIPS. Thank you, Ms. Van Duyne. Professor Fairlie, you are now recognized for 5 minutes for you opening statement. STATEMENTS OF ROBERT W. FAIRLIE, PROFESSOR OF ECONOMICS, UNIVERSITY OF CALIFORNIA, SANTA CRUZ; DR. MANJU PURI, J.B. FUQUA PROFESSOR OF FINANCE, DUKE UNIVERSITY FUQUA SCHOOL OF BUSINESS; IRYNA DEMKO, RESEARCH ASSOCIATE AT THE CENTER FOR ECONOMIC DEVELOPMENT, MAXINE GOODMAN LEVIN COLLEGE OF URBAN AFFAIRS, CLEVELAND STATE UNIVERSITY; ROBERT BARNES, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PRIORITYONE BANK STATEMENT OF ROBERT W. FAIRLIE Mr. FAIRLIE. I thank you. Thank you, Chairman Phillips, Ranking Member Van Duyne, and Members of the committee. It is an honor to testify before you on the Paycheck Protection Program. I am a professor of economics at the University of California, Santa Cruz, and I have studied entrepreneurship, racial inequality, and small business policy for over 25 years. I have been asked to discuss the findings from my research on small businesses in the pandemic and the allocation of PPP funds to communities of color. The economic impacts of the pandemic have been especially severe for small businesses, workers in minority communities. In my research early in the pandemic, I found that the number of active business owners in the U.S. plummeted by 22 percent from February 2020 to April of 2020. African American businesses were hit the hardest, experiencing a 41 percent drop in business activity. LatinX business owner activity fell by 32 percent, and the Asian business owner activity dropped by 26 percent. Job losses were all much higher for workers of color. Black unemployment hit a peak of 17 percent and LatinX unemployment hit a peak of 18 percent. Anticipating these potential losses, one of the stated goals of the CARES Act was to prioritize serving underserved markets and businesses owned by socially and economically disadvantaged individuals. In the beginning of the pandemic, however, minority businesses and communities were generally delayed in obtaining financial assistance through the PPP. Research of mine and others found that the first round of the PPP went disproportionately less to minority communities. In the second round of PPP funding Fintech lenders were more involved in making loans and disbursement to minority businesses and communities improved. A few months after the program ended in the summer of 2020 Covid cases began to rise rapidly and social distancing restrictions returned. Given these concerns, the PPP restarted in January 2021 with a strong emphasis on helping eligible borrowers in underserved and disadvantaged communities. A head- start for applications through CDFIs, a 2 week exclusion period for applications from very small businesses were introduced. Access to loans was emphasized for sole proprietors and independent contractors that didn't have employees. From January to February--or, sorry, from January to May 2021 6.7 million loans totaling $278 billion were provided. But did these funds in the rebooted program get disbursed to minority communities as intended or did the program struggle with equitable loan disbursement. So what we did is we analyzed the 12 million loans proved through all 3 rounds of the PPP. We basically had five main findings. First, we find evidence of the strong positive relationship between PPP loans and the minority share of the population in the third round. We analyzed this relationship using several different measures and found consistent evidence that minority communities received loans. Second, in contrast to this finding, we found a negative relationship for the first round in 2020 and a less positive relationship for the second round in 2020. Third, we found a stronger positive relationship between minority share for loans in first draw of loans than second draw of loans in 2021. This is important because it might capture persistence in racial inequities from the first round, because a small business can only obtain a second draw loan if that business indeed received a first loan draw in the earlier round in 2020. Fourth, we found that PPP loans also went to self-employed business owners without employees in minority communities. Fifth, many more banks and financial institutions were involved in the third round, including Fintechs and CDFIs, which helped spread funds to small businesses in underserved markets. To conclude then, the rebooted program in 2021 appears to have been disbursed to communities of color as intended. Although it is too early to tell what the long-term effects are from the third round of funds for small businesses in the country, there is no doubt that access to capital poses one of the most important barriers for small businesses. This is especially true for small business owners of color. Half of black families in the U.S. have less than $14,000 in total wealth, half of LatinX families have less than $32,000 in total wealth, whereas the median level of wealth among white families is $187,000. Black owned businesses also start with substantially less capital than white owned businesses and these disparities continue over time. I believe that two things could help us move forward. First, we need to continue to provide access to capital for struggling businesses. One method to do this is to increase the range of financial institutions both geographically and by type. Increasing involvement of a wider range of financial institutions appears to have helped improve access to loans to communities of color. Second, we need more awareness and action on increasing the diversity of suppliers and producers. Consumers often value knowing where their purchases of goods and services help disadvantaged businesses and workers, but consumers and firms need information to make these choices. Additionally, governments and businesses can increase diversity in their suppliers, all of which will help provide a steadier stream of revenues to disadvantaged and small businesses. This in turn will help with the access to capital issues. Thank you for the opportunity to present the findings from my research on this topic. I look forward to hearing your comments and questions. Chairman PHILLIPS. Thank you, Professor Fairlie. And now I recognize Professor Puri for 5 minutes for your opening statement. STATEMENT OF MANJU PURI Ms. PURI. Subcommittee Chair Phillips, Ranking Member Van Duyne, and Members of the Subcommittee, thank you for inviting me to testify in front of you today. I am Manju Puri, the J.B. Fuqua Professor at the Fuqua School of Business, Duke University. I have over 25 years of research experience examining financial institutions and bank relationships. I will be drawing on my research today on PPP. When Covid hit, small businesses were particularly vulnerable. Small businesses typically have cash on hand that only lasts for a month without revenue and in fact less than a quarter of them can survive even two months without revenue. They are the engine of growth, accounting for 61 million jobs, so clearly it is important to support them and to so quickly. So the question is, what lessons do we learn about the speedy delivery of financial support in times of crisis from PPP? Let us start with banks as the delivery channel in PPP. Now, banks seem like a natural and obvious way to distribute funds. They have large networks, they are all over the country, they are in every nook and corner. Most small businesses have accounts with banks. But does using banks as the delivery channel shape the supply of PPP? It is important to look at the funding prioritization of banks. When PPP was originally announced there was a scramble for funding. There were lines outside the doors of banks. The entire initial allocation of $349 billion was exhausted in a few days, by April 17, 2020. And then after a pause of ten days, it started again on April 27 with the second allocation of $320 billion. So looking at who gets PPP early, before April 20, 2020, gives us a rare and clean window as to the prioritization allocation priorities of banks across clients. In particular, we distinguished between large and small banks, how they treat large and small firms, whether they treat them differently, and what is the role of bank relationships. Now, arguably, big and small banks have different business models, right. The value added by big banks is access to one stop shopping, networks, et cetera, which are perhaps more relevant for large firms. On the other hand, small banks specialize in relationship-oriented lending, as suggested by the 2018 FDIC small business lending survey. I would like to briefly give you the following findings based on three data sets and a very large new data set on UCC filings of bank relationships. One, small banks deliver PPP funding more promptly. Two, if you are a firm with a bank relationship, you get PPP early. Now, this is especially true if you have a relationship with a small bank. Three, all banks in general prioritize large firms, however, the crowding out effect of small banks is fully eliminated and even reversed when firms have relationships with small banks. This suggests that the small firm-small bank relationship is special and it should be leveraged in future and other funding initiatives. Now, a second set of lessons concerns funding hesitancy. PPP funding is remarkably cheap. When it was announced, firms that took PPP saw a stock price reaction positive 1 percent, yet several firms returned PPP and when they returned it they again saw a positive stock price reaction, actually of 3 percent--three times. Why so? Our research suggests that the market values the fact that these firms returned PPP, that is frees from the uncertainty of the threat of a government investigation, especially when there is uncertainty about the scope and the timing. So let me close by summarizing the key takeaway. The main point is intermediaries matter when you are delivering government funding. In PPP funding is delivered sooner by small banks and when there are banking relationships, especially with small firms. The crowding out of small firms is less when small firms have small bank relationships. A second lesson is that just as there are clear norms and ex ante eligibility of PPP, there should also be clear guidance on ex post investigation to help remove funding hesitancy. But perhaps the most important lessons is about intermediaries. In designing financing programs for small firms, policy makers should recognize and leverage the specialness of small bank-small firm relationships. Thank you and I would be happy to field any questions. Chairman PHILLIPS. Thank you, Dr. Puri. And now I recognize Dr. Demko for 5 minutes for your opening statement. STATEMENT OF IRYNA DEMKO Ms. DEMKO. Thank you for the invitation to testify at the hearing titled ``An Empirical Review of the Paycheck Protection Program''. It is an honor for me to present before you and answer questions. I am a research associate at the Center for Economic Development in the Maxine Goodman Levine College of Urban Affairs at Cleveland State University. I am also from Ukraine and my family is in Ukraine right now. I have focused my research on the access of minority, Hispanic, and female owned businesses to PPP loans. In 2020, these businesses received smaller PPP loans than their business counterparts of the same size. For example, Hispanic owned business with less than four employees received 5 percent smaller loans compared to non-Hispanic owned business of the same size, or $828 less. Minority owned businesses received 11 percent less per employee than white owned business, or $1,000 less. Larger companies displayed increased discrepancies in loan amounts. On average, female owned businesses with less than four employees received 17 percent smaller loans than male owned businesses of the same size. And female owned businesses with 20 to 500 employees received 22 percent smaller loans than male owned businesses of the same size. I conducted over 20 interviews with a variety of PPP loan recipients. The sample consisted of businesses in Northeast Ohio where nearly 40 percent of previously employed residents filed for unemployment as the pandemic started. I interviewed small businesses that received PPP loans from about $20,000 to over $2 million. The sample included female owned, male owned, minority owned, and white owned businesses. Every respondent expressed appreciation for the assistance provided by the government in the form of PPP loans. And the majority stated that the loan helped them retain employees. In general, businesses that received smaller loan amounts reported more difficulty with the loan application process, filing multiple loan applications with multiple banks and pursuing more unique funding sources, such as Fintechs. Respondents cited the reason for this difficulty stemming from the size of their business. For example, a business owner complained, I couldn't get anyone's attention or response because I am a small business. Some respondents stated that lenders could have been incentivized to work with businesses of diverse ownership and size. Beyond the difficulty in finding a lender, many recipients of smaller PPP loans expressed frustration over loan amount limits and permitted uses. Many interview respondents didn't realize that rent, mortgage, and utility payments could be included in the requested PPP amount. As a result, they missed out on the opportunity to receive higher loan amounts. Most businesses do not have experience in doing their financial. They had a steep learning curve to understand how to apply for the learn. For us it was all foreign language, said one PPP recipient. This highlights the importance of communication strategies and free technical assistance to guarantee the success of a public policy. From a policy perspective, if the goal is to target ethnic disparities and support inclusion in federal aid for entrepreneurs, then the program cannot be one size fits all. In 2021 SBA set aside a 2 week exclusive application period for smaller businesses with fewer than 20 employees. While a few small businesses interviewed in Northeast Ohio did mention that exclusive application period was a valuable change, others felt that it was not long enough. Interview findings didn't confirm biases by lenders or the SBA against minority or female owned applicants. Businesses that received unequal treatment from PPP lenders not based on the demographic of their ownership, but when their business was smaller. These findings have important implications because previous literature found that minority owned firms are substantially smaller than white owned firms. Research compared in male and female business owners also found women operating smaller business in terms of annual turnover and employment size. As such female and minority owned businesses tend to fall under business the case of businesses that may have applied for smaller PPP loans. I am looking forward to your questions. Thank you. Chairman PHILLIPS. Thank you, doctor. And just to say once again, all of us, this country, this Committee, this Congress, have you and your family in our hearts and all of Ukraine. And we know how difficult it is to be with us today and we are grateful that you are here. Thank you. Ms. DEMKO. Thank you. Chairman PHILLIPS. And with that, I now recognize Mr. Barnes for 5 minutes for your opening statement. STATEMENT OF ROBERT BARNES Mr. BARNES. Thank you, Chairman Phillips, Ranking Member Van Duyne, and Members of the Subcommittee. I am Robbie Barnes, president and CEO of PriorityOne Bank in Magee, Mississippi. I testify today on behalf of the Independent Community Bankers of America and want to thank you for this opportunity. PriorityOne Bank is a $900 million community bank with 230 employees and 15 branches in 5 counties. Our markets are rural, suburban, and urban. We are also a community development financial institution, serving a predominantly low to moderate income market. The paycheck protection program was a natural fit for the business model of community banks. We are small business lending specialists with local knowledge and deep roots in the communities that we serve. My bank's PPP lending is typical of most community banks. We made a total of over 1,200 loans for roughly $40 million. Our average loan amount was $32,500 and our smallest loan was for only $350. PriorityOne Bank's long history as an SBA 7A lender helped us to navigate sometimes challenging SBA channels on behalf of our borrowers. My written statement includes stories that illustrate the impact of the PPP. One of those stories is of a minority owned nail salon in our community that received first and second round funding for a total of less than $12,000. Though this borrower did not initially qualify for a second-round loan, we analyzed her cash flows and determined that her 40 percent revenue drop was pandemic related, which qualified her for additional funding. That business survived the pandemic and was able to remain open. This is just one of any number of examples I could offer. All the community banks have similar stories and results. Community banks made nearly 60 percent of PPP loans, supported nearly 50 million jobs. What is more, community banks made nearly 72 percent of the PPP loans to minority owned small businesses and 81 percent of PPP loans to women small businesses. I am proud that my industry stepped up to support the survival of these diverse businesses at a time of crisis. The challenges of the program are well known to this Committee. The task far exceeded the scale and technological capacity of anything the SBA had previously undertaken. However, the agency was dedicated to making the program work and continued to adapt and improve. The forgiveness phase of the program brought a separate set of challenges, but our upfront process and strong relationship with most of our borrowers made forgiveness on the back end relatively straightforward. We did not make loans that we were not confident would qualify for forgiveness. Ninety percent of our PPP loans have been forgiven and we fully expect the remaining ones to be forgiven as well. We have experienced no cases of fraud or default. As you consider the lessons of the PPP in designing future SBA lending programs, I would emphasize the critical role played by community banks. SBA programs work best in partnership with experienced on the ground community bank lenders who are committed to the borrower's success. There is a strong network of community banks, CDFIs, and other lenders in every market in the country to meet demand for small business borrowers. The SBA on its own simply does not have the resources or the know how to effectively reach thousands of small business borrowers. What is more, community banks offer our borrowers a long- term relationship that goes well beyond the initial loan. It includes practical real world business counseling, mentoring, and networking opportunities. This is our core value proposition and it is one that is especially important for startups. The SBA simply cannot replace this kind of relationship lending. Further, the involvement of banks is critical to reducing fraud. Community bankers know their customers, they know the difference between a legitimate business and a shell business set up to perpetrate a fraud because they meet with business owners, visit their businesses, and see their operations. With an on the ground presence, the SBA cannot assist borrowers first-hand. The distance from the borrower makes direct lending vulnerable to fraud. Community banks must not be sidelined in the critical task of creating access to capital. We are committed to working with this Committee and the SBA to ensure the 7A program is reaching the smallest borrowers. Thank you again for convening today's hearing and for the opportunity to offer a community bank perspective on the paycheck protection program and other SBA programs. I'm happy to answer any questions you may have. Thank you. Chairman PHILLIPS. Thank you, Mr. Barnes. And to all of our witnesses, we appreciate all that you have shared with us and for being with us today. I am going to begin by recognizing myself for 5 minutes and direct my first question to you, Mr. Barnes. You just stated that PriorityOne Bank has experienced zero cases of fraud in over 1,200 loans to the PPP program. So assuming that would be true for most of the banks in PPP due to their preexisting relationships with most of their borrowers, shouldn't the government be focused more now on investigating non bank originated PPP loans where fraud is certainly more likely to have occurred in your estimation? Mr. BARNES. In my estimation I think that the community banks do have an advantage, if you will, because of our relationships with our customers and existing borrowers. However, we did serve customers--or I guess non-customers, those that applied for us that were not currently customers of our bank. But as alluded to earlier in this hearing, we have a know your customer policy we have to abide by. And we live and we work with and we see these businesses, you know, day in and day out. So it is very easy for us to determine legitimate businesses from those that may not be. I can't speak for those lenders who may have made loans in communities or markets outside of where they operate and how that might have affected fraud and--because as I said in my earlier opening remarks, we didn't experience any fraud. And I think that you can probably assume that most of the community banks also had the same experience. Chairman PHILLIPS. Thank you, sir. Dr. Demko, you repeatedly heard about the need for a centralized application portal to standardize the information that small firms had to submit that would help lenders from becoming overwhelmed with processing applications, especially for smaller loan amounts. As you know, the private sector has largely abandoned this segment of the market because the fixed lending costs often outweigh the potential returns for lenders. So do you believe that these findings support the creation of a targeted direct loan product from SBA to better reach those overlooked by the banks? Ms. DEMKO. I think that centralized application portal may help businesses with access to the loans. And it is not just that, it is also free technical assistance with the applications, because many of applicants didn't know what to do with the application. And I think that exclusive application period may help as well. Chairman PHILLIPS. Any other methods that you think can be considered to better reach smaller underserved firms? Ms. DEMKO. So when we look at the distribution of minority owned and female owned businesses, among 1 million minority owned businesses, 64 percent, they employ less than 4 employees. And among 1.2 million of female owned businesses, 65 percent employ 4 or less employees. So I think that exclusive-- if we want to reach small businesses, exclusive application periods may really help. Chairman PHILLIPS. Okay. I appreciate it. Dr. Puri, I know your findings stopped short of including CDFIs, but do you think that would be valuable to consider for other researchers? Especially given their greater likelihood of having had relationships beforehand? Ms. PURI. What our research suggests is that relationships are important, and not just any kind of relationships. It is small firm-small bank relationships. And I think any way that you leverage this can only be helpful, right. And so, so more broadly, whether it is community banks or other small banks or vehicles to do it, I think that would be helpful. Chairman PHILLIPS. Okay. I appreciate that. You know, I am going to yield the reset of my time and now recognize the Ranking Member of the Committee, Ms. Van Duyne, for 5 minutes. Ms. VAN DUYNE. Thank you very much, Mr. Chairman. Mr. Barnes, before we get into the PPP discussion, I just want to ask you about the economic reality that we have on the ground today. You have got small businesses, I am sure, coming to you. What are they telling you about what they are facing right now with inflation, rising gas prices, the labor market? Can you just help me explain what small businesses are coming to you with today? Mr. BARNES. Surely, Ms. Van Duyne. You know, businesses are still experiencing a lot of issues right now they are having to deal with--of course, inflation being one. One of the big issues that we are experiencing in the markets that we serve is the fact that--is getting employees back to work. You know, they are just--at this point in time they are still understaffed, still looking for qualified employees to come back in and help their business. Inflation has not helped at all, of course, and that puts a tax on the small businesses. It is not a governmental tax, but it is certainly a tax that they are still having to absorb. So there is still--small businesses are still struggling out there. And of course we are relationship lenders, as all community banks are. We work with our customers extremely closely, our borrowers. We communicate with them on a regular basis and we stay in close touch with them. And it is a difficult time. You know, Covid has knocked our businesses back down two or three times. When you think you get up, all of a sudden another wave comes and you are knocked back down. But hopefully we are toward the end of this and we will see some improvement as we move forward. Ms. VAN DUYNE. I appreciate that answer. And I agree with your statements on direct lending. From a fraud and efficiency perspective, private sector lenders have consistently out performed--I think you have heard that form all of our witnesses today--while also safeguarding taxpayer dollars. But from your perspective, what does history tell us about the government getting involved in direct lending? And at the end of the day, did the programs better assist small businesses as compared to the private sector driven 7A loan program? Mr. BARNES. You know, based on my experience, and I have been a lender for a number of years and have--been an SBA lender and done a number of 7A loans as well as 504 loans, and I think the partnership between banks and SBA is a good partnership. The government getting involved in direct lending I think has proven that it does not work. Borrowers in general don't have a high level of trust, to be honest with you, in dealing directly with a governmental entity. I don't think they are going to be able to reach those borrowers. It is a complex process to go through when you are dealing with SBA. It is just the facts of the matter. We as bankers understand that, we learned the process, we can navigate that and help our customers be able to obtain the funding that they need through that process. But from a direct lending standpoint, I am afraid you are going to alienate a lot of customers that may otherwise be able to be served through a banking relationship and a guaranteed loan process by going with the direct lending. Ms. VAN DUYNE. And thank you for that. You know, I also appreciate you talking about just kind of the excessive regulations that we see being faced by a lot of the small businesses today. You know, we are trying to get a bill passed that would actually address exactly that. So when it comes to access to capital, I believe there should be always--have a conversation on how these regulations are affecting small lenders. So, for example, we see that the CFPB is in the process of promulgating rules for Section 1071. can you share the community bank's perspective on this rule making? Mr. BARNES. Certainly, I will be more than happy to. Rule 1071, as you know, was mandated under the Dodd-Frank Act and is something CFB has no option but to implement. However, as currently presented and proposed, the rule goes beyond what is mandated in Dodd-Frank as far as collection of data. And basically what the rule is is a HMDA type rule for small business lending. But what is being required right now-- or presented or proposed by CFPB, goes beyond those requirements, is going to expose I think our borrowers to potential concerns about their right to financial privacy. It is going to put information out available to the public that is going to be information that could be detrimental to them from a competitive standpoint. And our borrowers are hugely concerned about that. We have been hearing from a number of them about this and we don't have a choice but to comply with it, obviously. But I think that it could force some of these borrowers to seek other options as opposed to the banking system because of the fact that they are concerned about the information that is going to be collected and their invasion of privacy. Ms. VAN DUYNE. I appreciate your testimony here today. I think it is something that we really need to look at and make sure that we are advising, because SBA's job is really to be able to support and advocate for small businesses. And if we are adding additional regulations and additional hurdles to being able to move on in your business, I think that is doing a detriment and the exact opposite of what we should be doing. So thank you very much for your testimony here today, and all the witnesses. And I yield back. Chairman PHILLIPS. Seeing no other Members asking questions, we are going to do one more quick round. I have one question for Dr. Fairlie. And, Doctor, I recognize--recall that you came here last year and provided testimony and I want to welcome you back to the Small Business Committee. Perhaps you could just take a moment and share how your current report builds off of last year's. Mr. FAIRLIE. Yes. So previously I reported on what was happening to small business owners. So some of the numbers that I briefly mentioned, you know, one of the most troubling was the 41 percent drop in black business owner activity. And so I have been studying the pandemic and studying small businesses over the pandemic. And that kind of evolved over time into really being interested in what was happening with the policy solution, so the PPP program. And so since then I have been studying what has happened over those three rounds. You know, seeing that kind of first round and studying it carefully and seeing that a lot of minority communities were not receiving those funds, and then going to the most recent study in the 2021 program and seeing that it made a big difference. There was a huge shift in terms of what we found in terms of that relationship with minority communities. So it was kind of a positive sign that the changes in the program really made so much of a difference. Chairman PHILLIPS. Thank you, sir. Mr. Barnes, your testimony mentions ICBA's support for SBA's 504 program, which, as you know, is experiencing significantly increased demand that caused a brief lending pause at the end of the last fiscal year. So how disruptive is it for a vital lending program like that to be under the annual threat of a shutdown due to increased demand? Mr. BARNES. In my experience, it is hugely disruptive. And I want to thank Congress for continuing that program and providing additional funding to allow it to continue. I have actually been in situations personally where I was the lender of a 504 loan and the funds ran out before the 504 loan was funded. And we had to wait--the customer had to wait on their business loan for almost 4 months before they could get any funding for it. You can imagine that 4 months, if they had been operational, they would have been employing people, obviously generating income, and paying taxes on that income. And it would have been a commerce for the communities it served. But it is hugely disruptive when you have got a deadline you are coming up against, you have got a finite amount of funds that you can draw from and there are more than enough of borrowers out there looking for those funds. So thank you again for the additional funding and additional time. Chairman PHILLIPS. Yeah, just to follow up on that, sir. Unlike the 7A program, 504 still lacks a provision that allows SBA to adjust the funding level without needing Congressional approval. So without such a provision the program is under constant threat of a shutdown if the pace of lending exceeds the expected levels. So, in your estimation, sir, should the 504 also have what we might call a shock absorbing mechanism, as 7A? Mr. BARNES. In my opinion I think that would be a great idea. Like I said, it would allow us to be able to serve borrowers when they need to be served and not have a disruption to their business model going forward. Chairman PHILLIPS. Thank you, sir. I am going to yield back the remainder of my time and recognize the Ranking Member, Ms. Van Duyne, for 5 minutes. Ms. VAN DUYNE. Thank you. I just have one quick question, Mr. Barnes. You stated that we did not make loans that we were not confident would qualify for forgiveness because we did not want to saddle anyone with unintended debt. And this struck me as significantly important in contrast with perhaps how some of the other non relationship lenders might have treated customers. So can you talk to the Committee a little bit more about this statement and how you operated under this program? Mr. BARNES. Certainly. I will be happy to. In every case when a borrower came to use for a PPP loan, we walked them through the process. We asked them for information to basically be convinced that they were eligible for the PPP loan and also that it would stand up through the forgiveness application. We many times worked with their accountant or financial advisor that they may have been working with through their business together, information. So we wanted to make absolutely sure that we didn't put a customer in a situation where we were trying to help and all of a sudden we have made it worse because they have now another loan that they have to pay, and they were already struggling to pay the initial loan that they have on their business. So I think it is just relationship banking. I mean that is what we do every day. We have a relationship with that customer, we work with them, we try to make sure that we improve their situation, we don't harm them by putting them in a worse situation. And our lenders are--you know, understand that, they are very good at that. We had lenders here that worked 24 hours a day, you know, 7 days a week trying to kind of build an airplane while we were in flight, to get this program up and going and started. And it was very, very frustrating, but I think in the end our main objective was to help as many customers and as many businesses in the communities that we served as we possibly could. Ms. VAN DUYNE. I think you just proved again that there is no--you know, there is no questioning that people on the ground who know their community, who are working in the community with actual real people completely outweigh the D.C. bureaucrats in being able to be efficient and effective and help in the community. So thank you very much for your testimony today. I yield back. Chairman PHILLIPS. The gentlelady yields back. And with that, I want to thank all of our witnesses again for joining us today. Your research analyzing PPP is a vital tool for all of us on this Committee as we work to make SBA programs reach the smallest of small businesses throughout the country. And it is heartening to see that the changes Congress did institute had a profound effect on entrepreneurs that were initially shut out of PPP. It is also vital that we take the lessons learned from the PPP program and apply them to current and future SBA programs. Making these programs more accessible and equitable will ensure that more entrepreneurs can pursue their dreams and that all small businesses have a chance not just to survive, but to thrive. I also want to note that the passage and implementation of PPP was an acknowledgment of Congress' responsibility to help small businesses during the COVID-19 pandemic. For the hardest hit small businesses and disproportionately impacted industries, including restaurants, live events, and fitness, the fight is still far from over. We have to once again acknowledge our responsibility to maintaining the strength of our small business ecosystem and I would argue pass additional targeted relief to ensure that our nation's most resilient small businesses do not close their doors after surviving 2 years of this terrible pandemic. I urge the inclusion of such relief in any supplemental COVID-19 bill that comes before this Congress. With that, and without objection, Members have 5 legislative days to submit statements and supporting materials for the record. And if there are no further business to come before the Committee, without objection, we are now adjourned. Thank you, everybody. [Whereupon, at 11:42 p.m., the subcommittee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]