[Senate Hearing 118-383] [From the U.S. Government Publishing Office] S. Hrg. 118-383 OVERSIGHT OF THE U.S. SMALL BUSINESS ADMINISTRATION AND REVIEW OF THE PRESIDENT'S FISCAL YEAR 2025 BUDGET PROPOSAL ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP OF THE UNITED STATES SENATE ONE HUNDRED EIGHTEENTH CONGRESS SECOND SESSION __________ MARCH 20, 2024 __________ Printed for the use of the Committee on Small Business and Entrepreneurship [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 56-456 WASHINGTON : 2025 ----------------------------------------------------------------------------------- COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED EIGHTEENTH CONGRESS ---------- JEANNE SHAHEEN, New Hampshire, Chair JONI ERNST, Iowa, Ranking Member MARIA CANTWELL, Washington MARCO RUBIO, Florida BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho EDWARD J. MARKEY, Massachusetts RAND PAUL, Kentucky CORY A. BOOKER, New Jersey TIM SCOTT, South Carolina CHRISTOPHER A. COONS, Delaware TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois JOSH HAWLEY, Missouri JOHN W. HICKENLOOPER, Colorado TED BUDD, North Carolina Sean Moore, Democratic Staff Director Meredith West, Republican Staff Director C O N T E N T S ---------- MARCH 20, 2024 Witness Page The Honorable Isabella Casillas Guzman, Administrator, U.S. Small Business Administration, Washington, D.C....................... 4 Prepared Statement........................................... 7 Additional Letters/Statements for the Record Bowles, Erskine, Former SBA Administrator Testimony dated February 22, 1994............................ 17 Funding Circle Letter dated March 26, 2024.................................. 102 Funding Circle Shareholder Analysis February 28, 2021............................................ 109 Funding Circle Shareholder Analysis February 29, 2024............................................ 113 Questions for the Record The Honorable Isabella Casillas Guzman Responses to questions submitted by Chair Shaheen, Ranking Member Ernst, and Senators Cantwell, Cardin, Hirono, Hickenlooper, Risch, Scott and Young....................... 121 OVERSIGHT OF THE U.S. SMALL BUSINESS ADMINISTRATION AND REVIEW OF THE PRESIDENT'S FISCAL YEAR 2025 BUDGET PROPOSAL ---------- WEDNESDAY, MARCH 20, 2024 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The committee met, pursuant to notice, at 2:33 p.m., in Room 428A, Russell Senate Office Building, Hon. Jeanne Shaheen, Chair of the committee, presiding. Present: Senators Shaheen [presiding], Cardin, Markey, Booker, Coons, Rosen, Ernst, Young, Hawley, and Budd. OPENING STATEMENT OF SENATOR SHAHEEN The Chair. Good afternoon everyone. The Senate committee on Small Business and Entrepreneurship will come to order. We are delighted to be joined by Administrator Guzman. Thank you for being here today. Let me just advise everyone that we are in the middle of votes. If it is Wednesday and the committee is meeting, obviously we are in the middle of votes. So, I expect Senators will come and go, and that is the reason. Today, the committee will conduct a hearing to examine the Small Business Administration's budget request and to take a closer look at how the agency helps America's small businesses grow and thrive. The Small Business Administration is a vital resource for our nation's entrepreneurs, provides access to capital, entrepreneurial development services, support for small business Government contractors, and assistance for disaster victims. In New Hampshire, our local economies have benefited from a strong support network that helps launch new entrepreneurs and assist businesses seeking to grow and expand. This includes our SBA district office as well as SBA's resource partners like the Small Business Development Center, the Women's Business Center, and our two SCORE chapters. As chair of this committee and as a member of the Senate Appropriations committee, I am firmly committed to making sure that entrepreneurs have every opportunity to realize their dreams. But for our small businesses to succeed, SBA will require real investments from Congress. I intend to continue to support robust funding for these critical resources. This year, the President's budget requests $1.4 billion for the SBA. The Administration proposes many sound investments, including healthy levels for SBA's lending programs and disaster funding. In particular, the budget recognizes the urgent need for additional resources to administer the COVID Economic Injury Disaster Loan, or EIDL program. Without additional funding, the SBA will be unable to provide the level of customer service that businesses need, and it will have a difficult time identifying and rooting out fraud in the program. We need more funding for enforcement as well, which is why I was glad to see that the Administration requested a substantial increase for SBA's Inspector General, something that I had hoped we could do last year. However, I was disappointed to see that for the second year in a row, the budget cuts funding for SBDCs, Small Business Development Centers, for SCORE, and for the State Trade Expansion Program, or STEP. As someone who helped create STEP in 2010, I am a real believer that this program has a fantastic record of helping small businesses reach international markets. And when 95 percent of markets are outside of the United States, if we expect our small businesses to be able to enter those markets, we need to help them do that. Now, while I recognize that putting together a budget requires tradeoffs, I have to disagree with the Administration's proposal to reduce funding for STEP and other entrepreneurial development programs. As we craft our appropriation bills this spring, I will continue to push to protect these programs from cuts. I will also work to ensure that SBA uses its resources as effectively as possible. In particular, I would urge SBA to place more staff and resources on the ground where businesses are rather than at its headquarters here in Washington. Over the last few years, we have seen SBA's investment in its field offices diminish. I, along with other Senators, have repeatedly asked the agency to reverse this trend. As business owners know, there is no substitute for local knowledge and expertise. I want to ensure that entrepreneurs will always be able to turn to someone at SBA who knows their communities just like they do. Administrator Guzman, I look forward to hearing from you today and discussing some of these concerns. And with that, I will turn it over to Ranking Member Ernst. STATEMENT OF SENATOR ERNST Senator Ernst. Thank you, Chair Shaheen. And thank you, Administrator Guzman, for your appearance before the committee regarding President Biden's budget request of nearly $1.5 billion for the SBA. Under Bidenomics, Americans feel like no matter how hard they work and how hard they try to make the right decisions for their families, they just can't win. President Biden just called for nearly $5 trillion in tax increases in his budget, including on small businesses. The burden of these tax hikes will fall squarely on working Americans. President Biden would rather bureaucrats in Washington spend Americans' money than the folks who earned it. The arrogance is astounding. And just when we think it can't get any worse, in its new regulation upending the 7(a) program, the SBA ignored the lessons we learned from COVID era programs on financial technology and unregulated lenders. We all just watched these risks play out and cost the taxpayers billions. You would think the Administration would learn from its mistakes, but sadly not. The SBA is giving fintechs unlimited access to a key SBA program, along with reducing the underwriting requirements that protect American taxpayers. One of the first licenses awarded under the new rules was to a London based company called Funding Circle, whose current U.S. managing director is the former COO of the fintech Blue Vine, which aided in issuing fraudulent PPP loans. Not only that. Reports indicate Funding Circle has an investment from a Beijing based fintech conglomerate, and it is not clear whether the SBA knew it was giving access to loans guaranteed by American taxpayers to a company partially owned by the Chinese. Now, we have learned Funding Circle is selling their entire U.S., business with reports indicating they may try to sell their SBLC license too, and to whom we can only guess. Questions also remain if Funding Circle U.S. is financially sound. Funding Circle announced yesterday they plan to start making SBA loans as early as April. Meanwhile, Funding Circle's CEO states they don't have sufficient capital to make SBA loans and are looking to sell. What the heck folks is going on here? Based on the SBA's recent track record, I have zero confidence in the agency to do proper due diligence on SBLC risk and protect programs from CCP influence. The SBA said last year's reckless rule changes would fix their so-called ``small dollar loan problem.'' Yet again in the vein of Washington knows best, President Biden's budget revives another bad idea killed, killed by the Clinton Administration decades ago, the bureaucratic and inefficient direct lending program. Even President Obama said in 2010, that an SBA direct loan program would require ``standing up a massive bureaucracy, and it would take too long, and you would be frustrated.'' That was President Obama. The SBA at the time also acknowledged a direct loan program would cost ``billions of dollars in administrative funds.'' Today, my colleagues and I demand the Administration rein in its reckless lending rules and stop issuing new SBLC licenses like the one they issued to China affiliated Funding Circle. And no, this does not mean that the SBA should replace one disaster with a bigger one, like a direct lending program. That is why I and 12 of my Senate colleagues are proudly co-sponsoring Senator Scott and Senator Kennedy's legislation that would explicitly remove SBA's ability to make direct loans within the 7(a) program. Administrator Guzman, you are here today asking for more money to fund an agency that is actively failing to respond adequately to numerous inquiries from Congress, actively failing to track fraud in its programs, and whose offices are often deserted, with the GAO reporting that your headquarters has only a 9 percent utilization rate. That is GAO. That is not me. Bottom line, your agency needs to fix its major problems before asking for more money. The American people are so sick of Washington wasting their hard earned money, and the SBA's recklessness is a testament to the larger problems of Biden's mismanaged Government. I look forward to hearing from you, Administrator Guzman, and urge the Administration to reverse course on its irresponsible policy and management decisions. Thank you, Madam Chair. The Chair. Administrator, the floor is yours. STATEMENT OF HON. ISABELLA CASILLAS GUZMAN, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC. Ms. Guzman. Thank you so much, Chair Shaheen, as well as Ranking Member Ernst, and all the distinguished members of the committee who are here and who will be coming. I appreciate the opportunity to join you today. At the SBA, we do work hard to ensure that our 33 million small businesses and innovative startups have the tools and the resources and the support that they need to start, grow, and build resilient businesses as our nation's economy truly depends on their success. When I was confirmed by the Senate in March 2021, we were still facing unprecedented job losses of the COVID pandemic and subsequent downturn. SBA was scaling dramatically to save small businesses who were facing revenue losses and were unsure if they would survive. President Biden understood the challenges facing small businesses, and that is why his American Rescue Plan provided essential support to the very small businesses that are the heart of our communities. Every member of this committee knows a small business that wouldn't be open today if it were not for the support provided through the SBA. SBA's COVID-19 support, more than $450 billion during the Biden-Harris Administration, was a critical lifeline for our small businesses when they needed it the most. The Paycheck Protection Program helped small businesses and nonprofits retain their employees. The COVID-19 Economic Injury Disaster Loan, or COVID EIDL program, and targeted grants provided working capital to not only help small businesses continue to weather the worst effects of the downturn, but also position their businesses for growth to help our economy recover. The Restaurant Revitalization Fund and Shuttered Venues Operator Grants programs saved our mom and pop restaurants, the cafes, breweries, stages, the shuttered performing arts centers and cultural venues who are all anchors of our main streets, driving business across the country. Our historic level of investments in small businesses, including through the American Rescue Plan, combined with opportunities and landmark legislation such as the bipartisan infrastructure law, CHIPS and Science Act, and the Inflation Reduction Act, set the stage for America to have the strongest economic recovery of any developed country in the world. Last year, when I appeared before this committee, leading economists were predicting an economic downturn. Now, the U.S. economy continues to power ahead, inflation has slowed over the past 18 months, and interest rates are down from their recent highs. And with 14.8 million more jobs than when the President took office, labor markets are strong and stable. In addition, we have seen the top three years of small business application filings, the highest on record. This historic small business boom has delivered 16.8 million applications filed since the President took office. These acts of hope, as President Biden calls them, are powered by entrepreneurs in every State and especially by women and people of color who are leading with the highest start up rates. This is what happens when we have an Administration that is committed to building an economy from the middle out and the bottom up. SBA's capital and resource programs are reaching more communities and making an impact. I have visited thousands of businesses across the nation, including many in your districts and your States, and these entrepreneurs continue to inspire me and also inform the work at the SBA. Small businesses have shared with me their future plans and prospects, as well as the challenges that they face every day. And finding affordable capital often tops the list. In 2023, SBA supported more than $50 billion across our core lending, bonding, investment, and disaster programs. Our reforms helped reverse the decline in small dollar lending. By simplifying and cutting red tape, we have made it even easier to work with the SBA and have given greater flexibility to our expanded lending network to make the type of small dollar loans that are key to supporting SBA's historically underserved communities, which includes rural, low income, women, people of color, as well as startups and veterans. SBA loans to underserved markets have increased as a result of reforms at the SBA. For example, both loan dollars and numbers to black owned businesses have more than doubled, loan numbers to Latino owned businesses have doubled, and increased to women owned businesses by 70 percent. And for the first time in more than 40 years, SBA awarded three new licenses in the small business lending company program to companies in Alaska, Colorado, and Arkansas. SBA transitioned community based lenders and community advantage out of their pilot license into the new, permanent SASBLC license. SBA now has 142 SASBLC enrolled lenders, which is 39 more than the number enrolled under the pilot program just a couple of years ago. Critically, SBA has also prioritized preventing fraud across our programs. We put in place best practices for fraud prevention, detection, and response. We have also continued to work in close partnership with the Inspector General and law enforcement to recover stolen taxpayer funds in the COVID pandemic programs. Because of our reforms, all SBA loans in our core programs are screened for fraud prior to disbursement as part of our eligibility check. Our aggressive actions and investments mean that SBA is more strongly positioned to combat fraud, waste, and abuse across our programs, which allows our entire mission driven team at the SBA to focus on delivering entrepreneurial support and resources to help more Americans start and grow their businesses and recover after disaster. I look forward to working with the committee to ensure that the SBA has the resources it needs to continue to help propel the economy. [The prepared statement of Ms. Guzman follows.] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Chair. Thank you very much, Administrator Guzman. I think there is no doubt that the SBA has been critical, both during the pandemic, the PP program, and the SBA's ability to administer that. The programs that you have administered since that time under ARPA have allowed so many small businesses to survive that pandemic and continue to grow. I am sure all of us on the committee could point to businesses in our home States that have survived because of the work of the SBA. And one of the pieces of that, that I think is so critical, has been the district offices. And it is something that we have talked about on a number of occasions. And that is why it is hard for me to understand why the SBA appears to be scaling back that investment in district offices in favor of centralizing operations in D.C. And I would just point to a March 2023 report from SBA that called--was called for in the 2023 Financial Services and General Government bill, and it showed that field staffing levels in Fiscal Year 2022 were down 5 percent from Fiscal Year 2019, and that budgets from the Office of Field Operations, the office that oversees and funds field office activities, are down 30 percent. The Fiscal Year 2024 Senate FSGG Appropriations Report contains language that encourages SBA to set a floor at seven full time equivalent staffers per State and district offices and requires SBA to fill vacant positions below that level. So can you talk about the changes in funding or staffing at district offices, and what you can share with us today about what SBA is doing to comply with the language in the 2024 FSGG bill. Ms. Guzman. Yes, thank you for--[technical problems]--that. The field offices, as well as our resource partners, are key navigators for our small businesses to connect to SBA's core programs, the capital programs, the certification programs that are running here at the headquarters offices and at the SBA in D.C. Our, you know, field staff--obviously, we have vacancies across the country that we are continuing to focus on filling and competing in the marketplace to get those positions filled. And we have a remained commitment to ensuring that we can be staffed at the levels. I will point out that since 2018, SBA has not received its full S&E request for funding. We are continuing to manage in a resource restricted environment, you know, while also balancing, of course, the COVID pandemic. And, we have also been able to source additional support in the field, obviously, to try to help us address the COVID pandemic. We are servicing in responsibilities, but clearly, the agency requires resources to continue to grow on the ground. We will obviously take every effort to make sure that the field offices are fully staffed, that they have the expertise on the ground around contracting, as well as capital, and the core outreach programs that they so desperately need in small businesses around the country. The Chair. And do you have a list of those offices that have openings that have been either approved and can't hire people or have not been approved to fill those openings? Ms. Guzman. I know--I don't have that, of course, handy, but, I mean, my team would be able to give you more insights. I know that there happens to be one in New Hampshire that was mentioned to me recently. Of course, that is a vacancy that is trying to be filled. So, you know, we make every effort, of course, to not only balance our resources and work within the realm of what we are budgeted, but in addition to that, obviously try to expeditiously clear these vacancies. The Chair. Can I ask that the SBA provide this committee with a list of those district offices and what the current level of staffing is in those offices? Ms. Guzman. I am always happy to cooperate and respond to your requests. The Chair. Thank you. I appreciate that. Another area that I mentioned in my opening statement, where I was surprised to see a budget cut, was with the Small Business Development Centers. They are the SBA's largest resource partner. In Fiscal Year 2023, SBDCs exceeded their baseline goal for the number of unique clients served by over 30 percent. In New Hampshire, our SBDC network is vital to the small business community. This past year alone, it served over 3,400 entrepreneurs and over 200 communities. It helped businesses raise 37 million in new capital and contributed to the creation of retention of almost 630 jobs. And yet, I know that there has been a commitment on the part of SBA to create a community navigators pilot program. I am concerned that the funding that has been cut from the SBDCs is being used for that community navigators program. And I understand that each Administration has their own priorities, but it seems to me that while the community navigators have helped about 38,000 clients at a cost of $2,600 per client assisted, over the same period, the SBDC has helped almost 632,000 unique clients at a cost of about $440 per client assisted. So, it doesn't seem to me that that is a reasonable trade off. And so, can you help me understand why the cut in the budget for the SBDCs and what that funding is going to address? Ms. Guzman. Yes, happy to. And the SBDC--I have slightly different numbers, but the community navigator pilot program, you know, did directly counsel in the 30,000 range. But they also reached 350,000 people. The point of that program was to be navigators, to connect them to SBA's existing resources, not duplicate. The SBDCs, I show, reach 326,000. And my question really is, there are 33 million small business and innovative startups. You know, we need to do more to reach the 32.7 million other small businesses every year. And our efforts to try to incentivize new networks, new entrepreneurial ecosystems, that have trusted local relationships that can meet businesses where they are, is really our commitment and continuing to request funding for the community navigators pilot program. We believe all these resource partners do incredible work in the community. You know, after 40 years of performance, the SBDCs clearly do a wonderful job. I have met with them, with you, and your State, and we want them to continue to perform, but we do know that they don't serve everybody. I was recently in Michigan, met with a small business owner who brought the SBDC along to show, you know, what they have done to help advance her business. But just a couple hours later, I met with another business owner, talked to them about the SBDC and that she should try to get help. And she just said, no, no, no, that is not for me. Whether it is the university setting in that case or what, I am not sure, but obviously we are not meeting everybody and we are just trying to make sure that we serve all, as many as possible, of those small businesses and connect them to SBA's resources. The Chair. Thank you. Senator Ernst. Senator Ernst. Thank you, Madam Chair. And thank you, Administrator Guzman. As I mentioned in my opening statement, I do have grave concerns about SBA's oversight of the new SBLC licenses. And Administrator Guzman, please answer yes or no. Was SBA aware that Funding Circle had an investment from the China based investor Credit Ease when it approved the license? Ms. Guzman. I can't speak to the application review as that was done by my team. Senator Ernst. Okay. Thank you. What kind of due diligence is the agency doing on the potential licenses if it didn't flag and evaluate that potential risk? Ms. Guzman. We fully evaluate their safety and soundness and, you know, make sure that we are evaluating their performance in their loan portfolio in particular, you know, in terms of defaults and performance. And that is the, you know, the focus of our thorough review as we review all of our licenses and license applications. Senator Ernst. Okay. But I am concerned, and I do want to be clear that the SBA shouldn't take lightly any of those business relationships that might potentially expose our small businesses' proprietary financial information or provide a windfall to the CCP or any foreign adversary. Especially in today's day and age, we see what is going on with TikTok. We see so many other Chinese investments that are coming into the United States. I think that would be of grave concern to those that are going through the vetting process. Ms. Guzman. I know that the Colorado based U.S operations of Funding Circle that I know is, you know, obviously in the news lately. I know that they in particular, you know, continue to work with the SBA through this application process. They are not finalized. They hope to do SBA license--or excuse me, SBA loans in the coming weeks as they--as you read and as you announced. But we continue to work with them, and I will be sure to flag these concerns to my team as we move forward. Senator Ernst. Right. And again, so you are aware that the U.S. based part of that in Colorado is up for sale. So are--you are going to continue--let's just be very clear because I know you spoke to the House this morning. And you said that the SBA has not fully approved Funding Circle yet, but you believe they will start making loans in the next few weeks. And you restated that here. But it does seem, if we look at this situation, that they are using their SBLC license as a bargaining chip for their sale. So, you stated you will continue to allow Funding Circle to start making those SBA loans even though you know they are for sale. Ms. Guzman. Let me explain as well that 14 existing licenses in the SBLC program have been in existence for multiple decades. Those licenses have sold at least 60 times. Every time a license is sold, it is reviewed by the SBA team for re-approval. So, any sale of a license is reviewed by the SBA--approved. The SBA could deny, as it has in the past, denied an application for the sale of an SBLC license to a specific entity. So, that is, you know, something that the SBA is familiar with doing and operating over multiple decades, and this case would be treated in the same way. Senator Ernst. Okay. Well, we do know that Funding Circle has been lobbying for this license and has been actively trying to loosen the underwriting. They don't have the capital to offset the new SBA loan losses, and they have an active foreign investor that may pose a national security threat. The relationship between SBA and Funding Circle is very suspicious, again, with everything else that we see going on with the CCP. And I do urge you to go back and scrutinize that, and of course, share our opinion or my opinion with those that are making those decisions. So, Administrator, SBA direct lending has historically seen very large losses, sometimes over 40 percent. And Clinton Administration officials have stated the subsidy rate is 10 to 15 times higher than for the guaranteed programs. And I ask unanimous consent to enter into the record the testimony of the former SBA Administrator Bowles. Unanimous consent to enter into the record? The Chair. Without objection. [The information referred to follows.] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Senator Ernst. Okay. Thank you. And so, Administrator, yes or no, are you planning to start a 7(a) direct lending program immediately? Ms. Guzman. The SBA has authority to do direct lending. We currently operate direct lending for disasters, which of course, does not perform at zero subsidy. The request that you are referencing is for authority for the SBA to be able to charge the appropriate fees to have a zero subsidy impact program, you know, for direct lending. And that is what is in the '25 budget that you are referencing. So, SBA doesn't have any current plans to do direct lending. Besides, of course, it is disaster lending, which it has been doing successfully for decades, you know, to help communities impacted by disasters. Senator Ernst. Okay. So, you do not plan to use the direct lending authority outside of emergencies? Ms. Guzman. We do not have some of the specific tools that we would like to have, you know, in order to do direct lending and not be in direct competition with our lenders who obviously distribute our loans effectively. Senator Ernst. Okay. So, we will expect that only direct lending will be used for emergencies. Ms. Guzman. That is what we are currently using it for under, you know, my leadership, correct. Senator Ernst. Okay. Thank you, Administrator Guzman. Thank you, Madam Chair. The Chair. Thank you. Can somebody check and see why the timing system is not working properly? Okay. We think it is working now? Okay. Senator Booker. Senator Booker. Thank you, Chair Shaheen. Thank you, Administrator Guzman. I am just really excited. Your testimony had some really great data points there. 17 million new business applications being filed is an incredible testimony. The strength of the economy and the strategies of your office and the Biden Administration. In fact, the first, second and third strongest years of new business applications on record ever is a pretty great testimony to what is happening in our economy and under the leadership of our President. We have seen historic SBA lending, also, as you pointed out, to underserved communities, women entrepreneurs. We are just seeing an incredible diversity there. And for me, there is no better symbol, especially not only to the power of entrepreneurialism in our country, but the redemptive possibility for people who have fallen, stumbled, or done wrong in the past. As somebody who does believe in second chances, who does believe in redemption, who does believe that your past does not determine your future, the fact that the justice-involved people are starting businesses at extraordinary rates is encouraging to me. And we know that studies have shown that individuals with a criminal record are 50 percent more likely to become entrepreneurs compared to those without a criminal record. But when looking to scale or seed their businesses, people who have been formerly justice-involved have bigger obstacles to accessing capital and have other barriers to actually getting businesses started. I was pretty psyched in January when you joined with Vice President Harris and announced that the SBA would eliminate the burdensome red tape that held entrepreneurs back, an incredible step forward that has been championed by Senators on both sides of the aisle. And so, can you--how will the changes that you all are proposing at the SBA be finalized so that these lending programs can provide justice-impacted individuals with greater opportunities to succeed in their small business endeavors? Ms. Guzman. The proposed rule--thank you so much for that and thank you for your leadership on this issue as well. And I know it is a topic we have discussed multiple times. The SBA is looking to streamline across all of its lending portfolio those rules to ensure that those who have served their time or who are justice-impacted, are not restricted from accessing loans to pursue their entrepreneurial dreams. Simplifying the process for our lenders, ultimately, and in essence, banning the box by no longer restricting access to our programs. And these, the final rule, it should hopefully be published soon. We are still in the rulemaking process. And so, once that is published, we hope to then, you know, follow the implementation schedule and move forward. Senator Booker. Yes. I mean, when I was Mayor of the city of Newark. With just removing bureaucracy, hoops to jump through these boxes that you have to check and these other things, really helped to streamline opportunities for people. And we forget it is not just these entrepreneurs. It is the jobs they create, the economy, and resources they bring to often underserved communities as well. So, I am really grateful to be continued partnership. We are going to continue to be watching and hoping to help in any way that we can. Federal contracts. It is a way that so many big American companies, especially defense contractors, again, create so many jobs get so much money. But I am really concerned that the people that are small businesses, women run businesses, often don't get a chance to bid on these Government contracts. And so nearly 50 years ago, Congress, in a bipartisan way, created a Federal program specifically designed to help socially and economically disadvantaged business owners compete, fairly compete, for contracts, arguing that multinational mega-corporations should not be the only ones that are capturing U.S. Government contracts. We made a lot of progress. I am proud of that. And made a lot of progress making sure that women run businesses, economically disadvantaged folks are getting a fair shot. The 8(a) program, as we call it, has been really a critical pillar of the efforts to really make our contractors better reflect the Americans that there are. But last summer, a Federal judge struck down parts of the 8(a) program in a move that really, I think, upends the decades of progress we have been making, and also the precedent that set really flew in the face of the original Congressional intent, bipartisan Congressional intent, of the 8(a) program. And so, I applaud the SBA's efforts to improve supplier diversity and to ensure that small business owners are given the tools that they need to compete for Federal contracts. And so, can you just talk to me, how does last summer's case, court case, impacted the SBA's work to improve outcomes for these entrepreneurs? Ms. Guzman. Thank you for that. We are pending final ruling on the ultimate case, and we are committed to complying with the law fully. Just speaking back to the program, Eisenhower wanted the SBA to exist because of the industrial base and being concerned with making sure there could be innovation in small business. So, completely agree with you. And these programs, all of our programs are really critical to making sure there are pathways to Government contracting. So, the status of the 8(a) program---- Senator Booker. And competition, because when you put these contracts---- Ms. Guzman. Competition and innovation---- Senator Booker [continuing]. You only get one qualifying bidder. It is ridiculous. Ms. Guzman. So, we continue to support small businesses in Government contracting. And the 8(a) program continues, as we continue to comply with the law and monitor the pending final decision in this court case. Senator Booker. Chair, thank you. The Chair. Thank you, Senator Booker. Senator Budd. Senator Budd. Thank you, Chair. Administrator, thanks for being here. I want to follow up with Ranking Member Ernst's questions. I didn't--I was listening intently, and the answers weren't quite clear to me. And here is what I am referring to. In the President's Fiscal Year 25 budget, it seems that the SBA is looking to revitalize an old authority. Now this is an authority that in your answer that you said you had but revitalized that authority and that hasn't been used since 1998, and to get back into direct lending to businesses to make small loans on a broad basis. So, does--if you could help me understand this clearly, does the SBA intend to stand up this initiative and begin issuing direct loans before Fiscal Year 2025? Ms. Guzman. I thank you for the clarification because what I did reference was that budget request. If given the tools to be able to properly implement direct lending, then we would be able to do that. Currently as is, as stands, we are not pursuing a direct lending program. But however, with the Fiscal Year 2025 budget---- Senator Budd. How would--thank you. How would you get those tools? Ms. Guzman. The budget allows for SBA to charge the appropriate fees to make this a zero subsidy program. Senator Budd. Do you intend to get those tools? Ms. Guzman. Correct- Well, they are proposed in the President's budget. Senator Budd. So, it sounds like you are--the budget proposes the tools. And if you had those tools, then you would begin direct lending. Ms. Guzman. That's correct, yes correct Senator Budd. So, it sounds like you will begin direct lending. Ms. Guzman. If the Congress moves forward with the budget in the proposal, yes, correct. In 20--and the Fiscal Year 2025 budget would create that authority. Thank you. Senator Budd. So, I understand that the SBA will use an interest rate increase to start, or excuse me, to fund the program. An interest rate increase to fund the program. What funds will you use to start the program? So, interest rates, an increase there will fund it. What would you use to start the program? Ms. Guzman. The programs, you know, we have a very strong unified lending platform. The SBA has invested heavily in technology to shore up its programs at the SBA following the scale of the COVID pandemic. Not only with the technology tools to be able to prescreen for fraud and eligibility across our 7(a) and 504 programs today. But in addition, we have a strong lending platform that is used in our disaster program. So, we would be well positioned to be able to administer this direct lending program if given the authority and tools to be able to charge the appropriate fees for zero subsidy impact on the taxpayer. Senator Budd. Thank you. You know, it is interesting to me that after SBA substantially reorganized the 7(a) program, which is still continuing to pose challenges for 7(a) lenders, the Administration now wants to get back into direct lending, assuming you get these tools, which it sounds like you will. So, in this case, it would be the lender, the underwriter, and the guarantor, which puts the agency in direct competition with the private sector. And you mentioned disaster, right? And I am not sure if that is a great example to support your case, because we look at EIDL or EIDL program to see how woefully incompetent the SBA is at facilitating lending. So, Administrator, where did the SBA gain the confidence that it can be a good steward of taxpayer dollars and minimize losses below or even at par with industry standards? Ms. Guzman. I am not sure exactly what you are referring to in the COVID EIDL, but presumably, you might be talking about the fraud. Note that the protections that are on all of our disaster EIDL programs were stripped away. Those protections were removed in 2020. That is why you had the huge, you know, onset of fraud early on in the nine months operating in 2020. Those are, you know, institutional, controls that we have always had in place across our disaster program. So, I would say that the COVID EIDL program is a very unique, you know, portfolio for the agency. Normally we are able to collect tax documents and check and clear for fraud and eligibility. Senator Budd. Thank you. Administrator, you mentioned fraud to the tune of $200 billion worth of fraud. You know, at the same time that SBA is loosening underwriting standards in the 7(a) program and standing up its own direct loan program, very concerning, the SBA has also announced that ILP loans or intermediary lending pilot programs, 7(a) loans and 504 loans, can now all be given to businesses associated with people who have been indicted or currently on probation or parole for financial crimes, fraud, and violent crimes. So let me say again, the SBA will now give Government backed, taxpayer funded loans to businesses associated with fraud and financial crimes, and all this after SBA disbursed an estimated, as I mentioned a moment ago, $200 billion in fraudulent loans during the COVID-19 pandemic. So, Administrator, given the SBA's recent track record in its various loan programs, do you believe now is the appropriate time to provide Government backed loans to known frauds and financial criminals? Ms. Guzman. The SBA maintains its programs to control for the do not pay list. So, if they have committed fraud against the Government taking a PPP or EIDL fraudulently, they are banned from Federal programs, VA, SBA, you name it. So those individuals would not be allowed into the program. So, we feel strongly that, you know, if you have served your time, you have a second chance in this country. If you are innocent until, you know, convicted and proven guilty. So, we want to make sure that we create pathways to entrepreneurship and to strengthening communities around this country. Senator Budd. Thank you. I yield. The Chair. Senator Cardin. Senator Cardin. Thank you, Madam Chair. Administrator Guzman, it is always good to see you. I am going to give a little bit different perspective here because this committee played a key role developing the programs during COVID, starting with the PPP program and the EIDL program. Under the previous Administration, and then continuing with the Restaurant Revitalization Fund, the Shuttered Venue programs. And I just want to give the bottom line. The bottom line is, look where we are today in our economy. We saved small businesses from going under during COVID. They would not be here today but for these programs. Our economy would not be where it is today but for the bipartisan efforts made to save small businesses. Now, when we passed those programs, we didn't know, in fact we thought that the pandemic would be a much shorter duration than it was. It was much more severe than we had anticipated when the programs were passed. And I say that because we had a grant program, basically the Paycheck Protection Program, which was-- it was forgivable loans. And then we had the EIDL program. And I don't condone any fraud. Fraud needs to be dealt with. We relaxed the rules intentionally because we had to get the money out quickly. That was a decision made by Democrats and Republicans. Actually, this committee was--had a Republican chair at the time. So, it was done by both parties recognizing we couldn't--if we waited too long and got all the bureaucracy information, the businesses would be under the water and wouldn't- couldn't be saved. Again, I don't condone any of the fraud that has taken place, but it leads me to my first question, and that is a lot of small businesses are struggling, particularly smaller small businesses, with repayment of their EIDL loans. This is through no fault of their own. They did what they had to, to stay afloat and now they are struggling. They haven't committed any fraud. They are just having challenges because of the circumstances surrounding their particular businesses. And I recognize we have enforcement issues, and we have to--you have to do what you need to do. But is there a way of showing, or how are you showing compassion to those small business owners that we want to keep afloat through no real fault of their own, have been overextended and are now having a difficult time paying back these loans? Ms. Guzman. Thank you for that question. And I have met with some of those businesses around the country as it is a still a common issue. This is a nearly $4 million portfolio, unprecedented portfolio. We have made every effort by investing at the front end in technology through my SBA. This unified lending platform that I referenced also does servicing on COVID EIDL, as well as, of course, our disaster programs. This servicing enabled us to do more than, you know, 12 million calls, 8 million emails, and letters to make sure that we are constantly corresponding with these individuals. We have made a huge effort in the last few months of really bringing people back into repayment, making sure that the portfolio continues to perform way above expectations of what Congress originally set. And in order to do that, we have allowed for hardship accommodations to bring people back into current status and current repayment. We know that that is the best path forward to collect this money on a long term basis. If you impose lots of fees and, you know, triple the cost of that monthly payment on the loan, you are less likely to collect it from someone undergoing hardship. So, we have been able to bring back tremendous--tens of thousands of people back into current status as a result. Senator Cardin. Thank you for that. I am going to give you a little different view on direct loans. I think there are many small businesses that do not have commercially, desirable loans because they are so small in dollar amount they are not really the type of loans that commercial lenders want to get involved in. So, I think a well-tailored direct loan program is something that could really help, particularly the smaller small businesses. So, I hope you get the authority, but I would urge you to work very closely with the committees to make sure it is set up in a way that carries out the objective and does not create additional burdens with the Small Business Administration. I want to ask you one additional question on the CASBLCs. We had lots of discussions during the rulemaking events. I was a big fan of the Community Advantage 7(a) program. To me, it had transparency. They were doing--we knew what they were doing. They were reaching a market that was very difficult for a lot of small businesses and underserved communities to reach. During the rulemaking, I was under the impression that you were going to continue with transparency on the CASBLCs so that we could see whether the metrics are being met by this new entity in reaching the underserved communities. I haven't seen that information. Are you intending to deal with the transparency and data so that we can have a way of making it accountable, that the metrics in fact--that this new umbrella is reaching the communities we were trying to reach? Senator Cardin. Yes. In fact, since Community Advantage is trying to fill those gaps in the marketplace, that direct lending would hopefully eventually help support as well, it is our, you know, priority to continue to track performance, while we report fully on the 7(a) portfolio. And they are part of it as part of our SBLC program. We are happy to continue to provide, you know, targeted performance data on the CASBLCs to this committee. Senator Cardin. I would hope that you would do that. Quite frankly, I would hope that you would do it beyond just our committee, that this would be public, transparent information that the broader community and stakeholders have confidence that how you are administering the CA programs today are meeting the expectations. Thank you, Madam Chair. The Chair. Thank you, Senator Cardin. I know that I have a few more questions. I think Senator Ernst may as well. I want to follow up on the COVID EIDL issue because, like Senator Cardin, I think people need to take responsibility and pay back their loans. But there are also some of those small businesses who are in difficult situations who may not have gotten clear communication. The servicing that was needed may not have taken place. We have heard from some of those small businesses in New Hampshire that the customer service center allowed borrowers to slip through the cracks and land in default, either when they were making an effort to catch up on their payments, or they were unaware that they were in danger of being referred to Treasury. So can you talk a little bit more about what we are doing to help those small businesses that are not committing fraud. They are really trying to make their payments. They don't want to be turned over to Treasury. What are we doing, and what more can we do to help those folks, working with Treasury? Ms. Guzman. We continue to focus and prioritize on collections, but obviously with enhanced customer service, wanting these small businesses to succeed and not lose jobs across the country. And so, we have, again, entered into an aggressive stance around hardship accommodation. You know, trying to truly accommodate, even if they can't bring their account to a current status, before entering into that hazard accommodation. We know that, while the SBA has, you know, based on more recent studies, started referring our entire portfolio over to Treasury, we are making sure that we can continue to work with these businesses to allow them to come back into servicing with the SBA and maintain payments in a way that is responsible to the taxpayer, but also allows them to continue to be in existence, which is our ultimate goal. The Chair. And so, what happens when they are turned over to Treasury? Ms. Guzman. You know, Treasury offset begins with, you know, Treasury's efforts to try to collect as much as they can from any Federal payments due. So, you know, tax refunds. If they happen to be a Government contractor, any Federal payments, multiple other programs. There is percentages taken from, you know, other payments that are due across the board, Social Security, some VA, etcetera. But that is the, you know, first step. And then ultimately it goes to cross servicing for collection. And those--that third party servicing is where there is a much more truncated time that they are allowed to repay from 30 years to 10 years, and of course, a much higher, you know, penalty with a 30 percent payment on top--30 percent of their total loans. So, this becomes more difficult for our small businesses to manage. And so, we are--, we want them to pay. We don't want them to close. And if closure is one option versus paying the SBA, obviously, we will pursue that and make sure we work with your constituents, and happy to hear from you directly if there are any specific cases that we have missed or have fallen through the cracks. But every borrower has received multiple phone calls. They have received multiple emails as well as letter correspondence before going to Treasury. The Chair. Well, thank you. I think we do have some businesses that we would like help on, so we will definitely share those with you. One of the other areas, issues that I mentioned in my opening statement had to do with the State STEP program, the State Trade Expansion Program, which I think is very important to help our small businesses get into international markets. Senator Ernst and I are working on some reform legislation to try and address some of the burdensome application and compliance requirements. But I think it is one area where we could really use help from SBA to improve the program and address administrative challenges. So, can you talk about what you think SBA could do to help work to address some of those burdensome requirements? Ms. Guzman. We have begun listening sessions with our STEP grantees to try to better understand how we can improve and streamline the program, and we want utilization. You know, I was just, highlighting in my last testimony one of our businesses in Kansas who has been able to use STEP. And he has grown his business and has multiple jobs around the country--you know, in his hometown of--or home State of Kansas. So we really, truly want this to be successful, and we commit to continue to work with them to come up with solutions and in partnership with you. The Chair. Well, thank you. One of the specific areas that we have heard about is that lenders have incomplete information about export financing options. And yet SBA proposed language this year to cut the number of export finance specialists. So, does it really make sense to scale back when that is an area that small businesses need? Ms. Guzman. The--in terms of the export finance specialists, we are finding that there are other challenges, not necessarily having the export finance specialists in terms of the number of loans. It is de minimis, a few hundred. So, the current 20 export finance specialists can handle that portfolio. We have been, you know, partnering obviously across our resource partners, our field offices to try to get more awareness of these programs. And we are looking internally at how we can strengthen our working capital loans around export but within the 7(a) portfolio that exists, to make these easier to use for our bankers. The Chair. Well, we look forward in--to working with you as we try and improve that program. Senator Ernst. Senator Ernst. Thank you, Madam Chair. And I just want to reiterate again, as my staff and I were visiting on a sidebar here, just Administrator, I know you said that you deal with the sale of the SBLC licenses all the time. But the SBA, as far as we know, has never granted a license to a company that intends to immediately turn around and sell the license. Typically, what we have seen in the past is that the SBA will grant those license to companies who plan to originate and service loans for a long period of time. So, I do think the Funding Circle issue is a bit shady. That is for all of our C-Span watchers, shady will be the key word, and just want Funding Circle to know that we will be watching these activities. So, anyway, I am going to move on to the telework issue, which has been a really big issue for me over the course of about the last four years, maybe since we started it during COVID. In response to my information request on telework, you stated that the telework employees are now required to show up to the office only two and a half days a week. And meanwhile, the SBA did set a very modest goal of reducing your physical footprint by 3 percent. GAO even rated your agency among the very worst for agency headquarters utilization, with a rate of just 9 percent. The only agencies that were lower were Housing and Urban Development at 7 percent, physical space utilization, and the Social Security Administration at 7 percent utilization. So yes or no, do you agree with the GAO that your headquarters operated at 9 percent utilization all of last year? Ms. Guzman. No, my data does not match that. That is--must be old data. Headquarters is currently at 50 percent, in terms of occupancy. And note that it is no longer two and a half days. We are in the office five days per--or you said two days per pay period. It is now five days per pay period. And that is now nationally as well. And so, you know, we have continued to follow the White House's guidance in making sure that our staff is in the office and performing, and meeting with small businesses around the country. Senator Ernst. Okay. I appreciate that. That GAO report information was from the end of last year. I think it was based on last year's numbers. And now, with the telework, you do not have teleworkers any longer or 50 percent? Ms. Guzman. Our permanent SBA staff have returned to work to this five days a pay period stance. So, yes. Okay. Pay period being? Ms. Guzman. Every two weeks. Senator Ernst. So, two and a half days per week. Ms. Guzman. Per week, correct. Senator Ernst. Okay. Are you---- Ms. Guzman. And that is at a minimum requirement. So, you have offices--it is really based on mission. Obviously our disaster team is in the office much more frequently. Our field offices go where they are needed in communities. And so, that is the minimum. It really is a mission focused. And, leaders are, of course, encouraged to bring people in whenever there is collaboration or, you know, special focus that they need the folks in the office. But, you know, we have, you know, really upped our standard in terms of our meeting the requests of the White House to ensure that everyone is coming back into the office on a regular basis. Senator Ernst. Okay. Do you know that you will have your employees return to five days per week? Ms. Guzman. We continue to work with OMB and follow the guidance, obviously competing for Federal workforce to make sure that we can retain our workforce and fill vacancies aggressively across the Federal workers. Senator Ernst. Okay. Now, I don't want folks to misunderstand me. Telework is fine as long as it is meeting your goals for those employees and that it is auditable. Do you know--are there standards in place to be able to go back and monitor the work product that is coming from the employees that are teleworking? Ms. Guzman. SBA had to quickly shift during the pandemic to remote work, working tirelessly to get out the pandemic relief. So, we definitely invested in systems and processes to be able to maintain performance. And leaders, you know, continue to have tools to track performance of their workers, yes. Senator Ernst. Okay. And thank you for that. It is a big issue with so many of the agencies. We do continue to receive information from actual employees within the various agencies. So basically, our whistleblowers that are out there, that agencies are not responsive to our constituents. So, I do hope that the SBA is able to meet the needs of all of our small businesses and constituents across our various States. This is something that will be very important to me moving forward, so I look forward to working with the SBA on these issues. Ms. Guzman. And if I could add, we definitely hope to do so. The budget allows for us to continue to maintain the service that we are currently performing on our COVID pandemic programs, thus the increase. That funding is really critical. Senator Ernst. Okay. Thank you, Administrator. Thank you, Madam Chair. The Chair. Thank you. Let me just point out that the second vote has been called, so if nobody has voted yet, you should go vote. Senator Coons. Senator Coons. Thank you, Madam Chair. And I will be brief since I have not voted. So, if I could, Administrator Guzman, it is good to see you again. Thank you for your leadership at the agency. We have talked in the past about SCORE. I am fond of SCORE not just because it was founded in Delaware, but because in 2023, 10,000 volunteer mentors helped launch over 30,000 new businesses and create 20,000 non-owner jobs. I think that is fairly high performance. I think they do a lot with a little. So, I was very disappointed to see SCORE cut by 40 percent in the President's budget request, and I will continue supporting a robust appropriation for SCORE. Help me understand the decision to deprioritize SCORE that aggressively. Senator Coons. SBA's efforts in the past few years, which has as you know, paid off with increased lending in underserved communities has been about expanding the distribution networks across our lending and as well across our resource partner networks. We know that our resource partners do an incredible job of meeting small businesses, serving them, however, they are not reaching enough. We have about 500,000 reached through our resource partner partners, about 500,000 through our field offices. There are 33 million small businesses. And I consistently meet with small business owners who just need additional touch points, trusted local partners. Our effort is to try to incentivize the local development of entrepreneurial ecosystems by funding networks who can, you know, go out and seek additional funding as well, like the SBDCs do, like the WBCs do, etcetera. So, this is really an attempt to manage too-limited resources, you know, across the SBA, but to try to continue to incentivize new entrepreneurial networks that can truly reach out and meet some of these underserved entrepreneurs. Senator Coons. I am sorry, I didn't understand what that meant at all. Well, I mean---- Senator Coons. You are trying to incentivize new entrepreneurial networks, but you didn't---- Ms. Guzman. Correct, like the Community Navigator pilot program, which I need to be more clear about it---- Senator Coons. Which I don't believe you funded at all? Ms. Guzman. We requested for additional funding in this budget, which is why you saw some of the programs reduced. And we are hoping to incentivize the development of more strong entrepreneurial ecosystems, and the navigators can -- Senator Coons. So, what you are describing is your view of the value of community navigators. Ms. Guzman. Sorry, yes. Senator Coons. Rather than any negativity about SCORE. Ms. Guzman. No, no, not at all. I am sorry. We--was sort of continuing off of the previous answer but you were not here, apologies. Senator Coons. My apologies, I was in another hearing. I just introduced with Senator Kennedy the Small Business Contracting Transparency Act. Congress has enacted requirements that a certain percentage of Federal contracts go to women-owned businesses, to service disabled veteran-owned businesses, to businesses that are small but in economically distressed areas. And it seems that the Federal Government doesn't meet the benchmarks in those statutory commitments. And I am hopeful that in working with you, we can get some technical assistance to make sure that this bill is actually providing constructive transparency on meeting commitments to these particular set asides. I know, as you just said, that you share my commitment to supporting underrepresented entrepreneurs. What do you think are the most effective tools for doing so? And I think I just invited you to tell me why you are supporting Community Navigators. [Laughter.] Ms. Guzman. Well, clearly we do. And one of our community navigators actually focused on contracting the U.S. Black Chamber. But truly, we think that we need to simplify the process. And that cert was a program that we adopted from the Veterans--or took over from the Veterans Administration to make sure that our veterans had access to these important set asides and these programs. We are going to be streamlining all of our certifications in line with what we did for the veterans and the service disabled veterans. And by doing so, hopefully increase the incentives and assure that we can have a more diversified base of contractors from which agencies can select. Senator Coons. Thank you, Administrator. Thank you, Madam Chair. The Chair. Thank you, Senator Coons. I am going to turn it over to Senator Rosen and ask Senator Markey if he would take over briefly as chair while I go vote, and I will be back shortly. Senator Rosen. Senator Rosen. Well, thank you, Chairwoman Shaheen, for holding the hearing. And Administrator Guzman, thank you so much for being here today and all of your hard work. And so, I am going to talk about small business childcare, something near and dear to everyone's heart around the country because the rising cost of childcare is financially squeezing parents in Nevada. And of course, across the country, we all know this. The average cost actually for infant childcare in Nevada is over $13,000--$13,000 a year. And lack of access to affordable childcare, it is a barrier for many parents who want to start or grow their business. And so, I feel that this is a crisis that demands action. It is why Ranking Member Ernst, and I introduced the Small Business Childcare Investment Act, and our bill is going to increase the availability of affordable, high quality childcare for working families by allowing nonprofits, those nonprofit providers, to participate in the same SBA loan programs that eligible for profit childcare providers have access to. The legislation passed out of committee last summer. Senator Ernst and I are working very hard to get this done. It is long past due, and I just wanted to bring it up quickly. And so, Administrator Guzman, can you talk about how the crisis, the childcare crisis, how it impacts our small businesses and how finally passing this bipartisan bill, which doesn't cost anything, just allows our nonprofits access to programs that already exist, are going to help. Ms. Guzman. We know that childcare and the infrastructure of that is really critical, especially for our women entrepreneurs who are starting businesses at double the rates of men right now. We have tried to deploy more programs to help support these entrepreneurs, and we believe access to capital is one of the top barriers. So being able to buy your building so that you can sustain in a community long term, as an example, through our 504 program, or being able to get working capital with the 7(a) program or, you know, to be able to continues to sustain. It is really important for our childcare entrepreneurs as well. And so, we are, you know, supportive of this bill and making the programs eligible for those nonprofit childcare centers as they are in our microlending program. And we do think that access to capital for these business models that are highly challenged, it is difficult to operate profitably and in this environment for childcare, but it is so critical for entrepreneurship in this country. Senator Rosen. Well, thank you. Thank you for outlining the steps you are already taking. And I hope that we get this done. Another area that I was so pleased to have you come to Nevada and work with me on the Veterans Business Outreach Center, because Nevada is home to more than 200,000 veterans, over 23,000 veteran owned small businesses. And so, despite all of that, until just this year, Nevada was without a dedicated in-state veterans business outreach center. Well, actually till last November, and when we opened the first VBOC to ensure that tailored support is provided to our veterans and the transitioning service members. So, I really want to thank you for being there at the grand opening, for sharing with all of us in Nevada what you are working on and doing, and answering my call to authorize this really important, first ever VBOC in Nevada. So, given that the SBA requested an increase in veterans outreach for the Fiscal Year 2025 budget, can you speak to the importance of these veterans business outreach centers and how they help ease the transition for servicemen and women? And how can we support existing VBOCs going forward in this mission? Ms. Guzman. We were thrilled to expand from 22 to 28 and include a location in Nevada where there are so many veterans. Veterans make incredible entrepreneurs, in terms of that grit and determination, and the teamwork, the ethic they bring, and so often have some of the traditional barriers that limit their access to capital. You know, maybe not that personal wealth since they sacrificed in serving their country. And so, with unique set of challenges, unique set of skills, but also enjoying being around fellow veterans for trainings, you know, VBOCs are very popular. And the more that we can get around the country with this-- the President's request for additional funding, would really help empower more entrepreneurship. And especially as we just launched as well a military spouses initiative, Military Spouse Pathways, which enables us to do intensive training not only for Boots to Business and Reboot for our veterans, as well as for our exiting service members, but in addition, for the military spouses. Senator Rosen. Well, thank you for working on that for the military spouses. So, we hear about that all the time. They sacrifice as well as they move around the families and the children. And so, it is really important we support them too. So, thank you for your efforts, and I yield to Senator Markey. Senator Markey. Thank you, Senator. So, welcome, Administrator Guzman. Thank you for all of your great work historically. And what I would like to talk about is something that is central to Massachusetts, but also to our whole nation. And that is the programs administered by the SBA, which is the Small Business Innovation Research Program, SBIR, and the Small Business Technology Transfer Program. And, you know, Massachusetts isn't just the Bay State. We are the brain State as well. We are only 2 percent of America, but we don't think of ourselves as just an ordinary 2 percent. We think of ourselves as the innovation State, which is where the Small Business Innovation Research Program and the Small Business Technology Transfer Programs come in, because we are a State of innovators, of pioneers in science and technology, research. And we have cultivated a very innovative culture within our State. And as a result, Massachusetts has received 26,000 SBIR and STTR grants over the years--26,000 grants. Now, we are a State of 7 million people, but it is estimated that upwards of 200,000 jobs in our economy have been created. And by definition, you focus on smaller companies, startup companies, innovative companies, cutting edge companies that are trying to make a breakthrough. And disproportionately they do. And then it is reflected in our economy. And then sometimes larger companies want to buy these little companies, but you find that larger companies don't innovate the way smaller companies do. And that is really what this whole program is about. It is to kind of unearth and incentivize that kind of innovative spirit that smaller companies tend to have and over time larger companies just lose hope. The way they innovate is by finding the most innovative companies and then buying them, you know, and incorporating them. So that is why it is just so exciting to me to just to know that you are--you know that you are continuing to lead on that. So, if you could, talk a little bit about those programs and the benefits of permanently extending them as something that American smaller innovative companies can rely upon. Ms. Guzman. Thank you for that, Senator. And we are completely supportive of reauthorization of SBIR. America's Seed Fund has really empowered some of our largest brands, Qualcomm, 23 and Me, CRISPR technology. We really know that ensuring that those small businesses commercialize and create--grow businesses and create jobs is really valuable. We are committed to continuing to support the 11 agencies that participate in this important research program and ensure that we strengthen the program, work with obviously Congress to ensure reauthorization. But in addition to that, we know that there are still big funding gaps for these firms. It is amazing, they get this, you know, $4 billion every year in non-dilutive funding to support their innovations. But when we are trying to compete globally in critical technologies and advance in industries that are being created, we want to make sure that those businesses get funded. So, we have also worked in tandem to strengthen our small business investment company portfolio. You know, also implementing, you know, transformative regulatory reform, this past summer, to create an SBIC model that is aligned with that long term investment that is necessary for some of these innovators and critical technologies. So, we are doubling down in this space and know it is vitally important. Senator Markey. Yes. Now, in the last reauthorization, Congress placed caps on the number of awards some companies may obtain. And there has been proposals to add new arbitrary caps as well. Do you agree SBIR and STTR grants should continue to be awarded based on scientific merit? Ms. Guzman. We do believe we need to seed innovation based on merits, and we will continue to try to support responsibly how we incentivize commercialization in the program as well. Senator Markey. Yes. Well, obviously, the popularity of the SBIR program has led to substantial growth, and the program stands at nearly $5 billion annually. You know, and that is the place where the innovators look. That is the place where they can rely upon to say, I have got a great idea. I go to the SBA, you know, and make sure that my idea, my new cutting edge scientific or technology idea has a shot at ultimately becoming a reality. Do you have adequate staff in the Office of Innovation to effectively manage the SBIR program? Ms. Guzman. Since 2018, SBA has not received its full S&E requests, our salary and expenses. But, so obviously we would, you know, appreciate fully--being fully resourced across the board. But in terms of the Office of Investment and Innovation, we have strengthened that office across the board, including in the SBIR program, creating for the first time as a senior executive service member to lead that office. Senator Markey. So, access to capital is a big issue too. And under the Biden-Harris Administration and under your leadership, SBA has been laser focused on closing the capital access gap, particularly in underserved communities. And the SBA has been successful, increasing the number of loans given to women and minority owned businesses, but even more can be done. The rate of entrepreneurship among communities of color is increasing exponentially. In November of last year, however, the Boston Foundation found that unmet demand for capital for entrepreneurs of color has increased in Massachusetts since 2019, and it is estimated now to be $600 million annually. And that is an unmet need in terms of, you know, that entrepreneurial spirit. How can we continue to make progress closing the capital access gap for entrepreneurs of color, and how much can expansion of direct loans be a part of that solution? Ms. Guzman. The regulatory reform that we implemented actually came from, you know, feedback from the lending institutions directly back when I served during the Obama, Biden Administration. Not as presented earlier. And so, what I would say is that the regulatory reform is trying to get to the root of the problem of why small dollar lending is overly burdensome for our lenders. And that is the regulatory reform. But in addition, the expansion of our networks through the small business licensing companies, by providing additional 3 licenses on top of our 14 licenses to the very lenders who are focused on filling gaps in underserved markets and who are trying to do small dollar loans where people of color are over indexed. You know, that is a critical part of our strategy, and it has led to success in terms of our increases in lending to these communities in particular. So, I am looking forward to those changes continuing to take hold. In addition, the President's budget includes a request for more authority for the SBA around direct lending. We know that we don't want to compete with our lenders. We want our lenders to be able to do these loans. That is why we have tried to simplify as much as we can to transform our programs and underwriting processes. But we do need to fill these capital gaps for entrepreneurship to continue to thrive, and we are looking forward to, you know, working with Congress on a positive solution for direct lending and continuing to fill gaps. Senator Markey. Yes. And as you know, unfortunately, in the private capital markets over the years, there hasn't been enough competition in providing loans for women and minorities. It just hasn't existed. You would think that somehow or another some paranoia inducing Darwinian environment would unfold, where banks, financial institutions say, let's loan to communities of color, let's loan to women. It just hasn't happened. It is improving, but that is where the SBA steps in, you know, and just says--we can see where there is a historic problem and where innovation would thrive if women and communities of color receive that funding. So that is why I just want to thank you for your great work, your historic work on it, and thank you for your service. And thank you, Madam Chair. The Chair. Thank you, Senator Markey, for filling in the time so I could get back from voting. And what was your term? Darwinian paranoia--I like that. That is an interesting term. Well, Administrator Guzman, thank you again for being here. Thank you for the work that you and everyone at SBA does every day on behalf of small businesses of this country. The record will remain open for two weeks for additional questions and statements. And with that, the committee stands adjourned. [Whereupon, at 3:50 p.m., the hearing was adjourned.] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]