▶ 0:16:07>> I call the committee on small business and entrepreneurship to order. Nearly two years ago, we will discuss the reckless new rules the small business administration implemented from the 78 loan program. They removed time-tested underwriting standards that mitigated the risk of default for american taxpayers who guaranteed these loans.
▶ 0:16:27The new rules also opened the door to foreseeable fraud by opening the potentially unlimited number of unregulated nondepository institutions to become permanently licensed sba lenders as small business lending companies or as plcs. The last administration seven a rules where the most drastic changes to the program indicates.
▶ 0:16:53Which is why members on a bipartisan basis foist -- voiced their concerns. Unfortunately they fell on deaf ears. I aggressively saw to understand how they were selecting and improving these new as plcs to participate in seven a. The types of lenders the sba was looking to license, finn techs, were responsible for widespread financial fraud and improper payments in the paycheck protection program.
▶ 0:17:23I ask unanimous consent to enter into the record in april 24, 2024 letter I sent with house small committee chairman williams to the capitol requesting information on the sblc selection process. Without objection so ordered. Two years later, we still have little insight. Even the recent sba inspector general's report on the subject was woefully inadequate.
▶ 0:17:50The ig reports stated that fda followed its own procedures but failed to evaluate whether those procedures were adequate. The ig did not bother to investigate whether there was pollution between sba officials and one of the largest applicants for a lending license funding circle U.S. nor did the report answer why the sba and ig concluded the cash position of funding circle U.S.
▶ 0:18:18Was sufficient despite the fact it was losing millions. The biden sba dangerous loosening of the underwriting and eligibility rules weren't the only efforts to undermine the financial soundness. A year before the rule, the agency started to cut the fees charged to borrowers and lenders.
▶ 0:18:45For three years straight, the sba cut these fees inexplicably allowing loans of up to $1 million to be made without the borrower or lender having to pay for the guarantees to the american taxpayer.
▶ 0:19:01As I said in a letter to president trump on january 21, the looming seven a fee are due to the previous administration's incompetent management of the program, which has harmed taxpayers and the small businesses saddled with debt they can't manage while irresponsible lenders get paid no matter what. I asked unanimous consent to enter this letter into the record. Without objection, so ordered.
▶ 0:19:29We are seeing the impacts of these rule changes with the 12 month default rate more than doubling to more than 3.2% since these rules went into effect. And default on loans less than 18 months old nearly tripling to almost 1.5% over that same period.
▶ 0:19:47While the biden-harris sba tried to blame it on rising interest rates, defaults on sba loans have increased faster than those in the private sector, which is evidence of poor policy decisions. It should come as no surprise that for the first time in 12 years, 12 years, the seven a program lost money. This negative cash flow must be immediately addressed by reversing the misguided decisions of the past administration.
▶ 0:20:18This program was designed to operate with zero subsidy. And I worry we are on the cusp of forcing taxpayers to foot the bill, something we should avoid at all costs. I want to commend the administrator for her recognition of these problems and her day one memo released this week and willingness to hit the ground running. It is clear the solvency of the lending programs is a major priority for the administrator.
▶ 0:20:47Who has committed to doing everything to ensure zero subsidy status is secure. Today's hearing is an opportunity to speak with participants to understand concerns about the program's financial stability. It also allows a committee together concrete suggestions by which to reduce the risk faced by taxpayers when insuring the program continues to be a resource for entrepreneurs who need assistance accessing capital.
▶ 0:21:16I would like to thank our witnesses for being here today and I look forward to your testimony. I now recognize ranking member markey for his opening statement. >> thank you, madam chair and thank you for hosting this hearing to discuss the government's role in entrepreneurs with the funding they need. Access to capital is always a top concern for small business owners.
▶ 0:21:43For 70 years, the sba flagship lending program has relied on government-backed loans to small business owners who are not eligible for conventional loan. Without government backing, traditional banks would only lend to the biggest, safest businesses in town while deeming loans to the smallest as too risky. Innovative ideas that benefit communities across the U.S.
▶ 0:22:11Would never have come to realization. Ideas that start in a garage would be thrown away before they could ever get off the ground. This is especially true for underserved communities, entrepreneurs of color, and women who have an even harder time historically getting funding as a result of historic discrimination. It wasn't until 1974 a woman was able to get a loan at a bank without a male relatives signature.
▶ 0:22:43Unfortunately as we all know, discrimination still exists today. Black-owned businesses are more likely to be denied loans or release -- receive less money than other borrowers. According to the fed, the small business credit survey, in 2023, 30 -- 32% of black small business owners with employees received funding they applied for compared to 54% of white small business owners. This is why sba's lending programs are so critical.
▶ 0:23:14They fill gaps. They level the playing field. In particular, the program which is a subset of7a utilizes community centered lenders. The program makes small dollar loans with a focus on reaching underserved small business owners. While the program does not define underserved by race or gender metrics, it reaches certain populations better than the digital sevena program.
▶ 0:23:45In fiscal year 20 to four, the community advantage program made 53% of its loans to startups. 43% to entrepreneurs of color. The traditional 7a program made only 32% of its loans to both groups. Sba has a response ability to address the inefficiencies in private lending to support true competition.
▶ 0:24:11It is the government's responsibility to make sure there is capital for all entrepreneurs regardless of their background. The biden understood this. They doubled the amount of small dollar loans maintained a healthy loan program and insured 99% repayment rate. 99% repayment rate. My witness here today from massachusetts, miss guerrero.
▶ 0:24:43An entrepreneur who just wanted to serve her community but struggled to get the funding to do so. She was unable to receive funding from her community bank, who was also an sba lender. And she did not have generational wealth to rely upon. That is where common capital, a massachusetts based lender in the community advantage program stepped in. So thank you for taking the time to share your experience with the committee.
▶ 0:25:11Your story is one example of why programs like the community advantage program is so important. I look forward to engage with witnesses about their experiences with the lending programs. I also want to acknowledge the committee's efforts, to codify the community advantage program.
▶ 0:25:32I'm hoping we can work together, madam chair, in a bipartisan basis not only to maintain the integrity of lending programs, but ensure that they serve small business owners from all backgrounds across our country. Thank you, madam chair. >> thank you very much. Now I want to extend a warm welcome to our witnesses. Thank you for joining us. I want to introduce the witnesses who are testifying today on behalf of the majority.
▶ 0:26:07I'm thankful they accomplished community bankers made the trip to washington, D.C. to share their expertise and insight into the sba seven a loan program with this committee. I will start with my island first. It is Mr. timothy fitzgibbon. Senior vice president at first national bank from west des moines, iowa. He started and built the sba lending business at first national bank, where he's worked since 2017.
▶ 0:26:37Previously, he was the senior vice president at the national council of higher education resources for 12 years. Prior to that, he was director of the guaranteed student loan program at the iowa student aid commission for more than 14 years. Mr. fitzgibbon holds a bachelors degree from the best university, iowa state university. And next is miss itzel sims.
▶ 0:27:07Sba director and senior vice president, first security bank. Headquartered in circe. Arkansas. She has a 24 year background in sba lending and previously worked at simmons bank and regions bank. She obtained a bachelor business administration from the university of texas at dallas. Thank you again and I recognize ranking member markey to introduce his witnesses. >> thank you, madam chair.
▶ 0:27:37I am pleased to show our witnesses who have a business relationship and can explain how it works for all small businesses. I would like to add I'm shocked the surface given did not go to the finest jesuits college, loris. I think the fitzgibbon somehow or another, I don't know if they welcomed you home.
▶ 0:28:07Mr. raymond lanza-weil. The president of common capital. A nonprofit community development financial institutions located in springfield, massachusetts. They provide sba micro loans and community advantage loans and technical assistance to small businesses in western massachusetts. The work provide such open orders from underserved communities with financing to start and grow business ventures.
▶ 0:28:34They work with borrowers in a holistic manner to ensure the success of these small businesses. Mayrena guerrero. She's a mental health counselor and founder of colorful resilience, a business that provides into health services to all, especially people of color. The lgbtq community and immigrants. She's operated colorful -- colorful resilience.
▶ 0:29:04With result of her entrepreneurial spirit, the community advantage loan, she runs a thriving small business with 15 employees and has provided vital mental health services to over 3000 clients. It is a perfect example in springfield of these institutions being able to work together to ensure that we have a thriving small business. Thank you, madam chair for welcoming these witnesses. >> again, thank you to our witnesses for being here.
▶ 0:29:34I would like to take a moment to explain our lighting system in front of you, the little boxes. There are three lights in front of you. Green means go, yellow means you're running out of time. And red means to go ahead and quickly wrap up your remarks. I asked unanimous consent that the witnesses full statements be included in the record. Without objection so ordered.
▶ 0:30:01As your written testimony has been made part of the record, the committee ask that you limit your oral remarks to five minutes. With that, Mr. fitzgibbon, you are recognized for five minutes for your testimony. >> chair ernst, ranking member marquis, and distinguished members of the committee. Thank you for the opportunity to appear before you today to discuss managing risk and the sba seven a loan program.
▶ 0:30:27I'm a senior vice president with first national bank, a one point $1 billion community bank based in ames, iowa and founded in 1903. I'm testifying on behalf of the iowa bankers association in first national bank. My responsibilities include special programs, sba and student loan refinance. I'm also a licensed investment advisor.
▶ 0:30:50I'm here to share my viewpoint not just as an sba lender, but a forty-year participant in government backed loan programs, including home mortgages and student loans where I've spent a good amount of my career helping borrowers manage their debt, improve credit, and avoid default. Risk in any loan program is primarily managed through sound underwriting policies. Prudent underwriting ensures equitable treatment for all applicants and is intended to be a good predictor of a borrower's future success.
▶ 0:31:20Good underwriting protects the consumer along with the lender. In the case of the government backed sba program, the taxpayer as well. In 2023, new rules were written for the program with the admiral goals of streamlining the application process and increasing access to funding for small business owners, particularly in underserved communities.
▶ 0:31:41Major underwriting changes included removing the applicant's personal financial resources from the credit elsewhere test, leaving equity injections, reducing insurance requirements, and permitting lenders to do as you do in underwriting sba loans. Reducing underwriting criteria to increase loan access is not a new idea and federally backed programs, but has not always proved wise.
▶ 0:32:07A similar approach was used in the 1990's to increase homeownership lowered credit standards for private market and fha loans which contributed significantly to the subprime mortgage crisis of 2008. A more recent example continues today with the federal parent plus student loan program. Already low underwriting standards were further diluted in the early 2010s to allow more families to access the parent plus program. Which has resulted in outlets older americans becoming buried in debt they cannot afford.
▶ 0:32:41Originating government-backed loans for borrowers who can never repay them is predatory in nature. It is imperative that sba closely monitor the impact of its reduced underwriting standards on the borrowers it serves. To that end, early indicators suggest there is already signs of credit stress for sba loans made under the new rules.
▶ 0:33:00For example, according to a recent risk assessment, the small business administration's flagship seven a program lost hundreds of millions of dollars in 2024 as agency fee reductions combined with an increase in loan defaults to result in negative cash flow. Similar analysis done by a third-party service provider shows loans made under the new rules are defaulting at a much faster and higher rate than loans made in other years. Particularly originated by non-bank lenders.
▶ 0:33:31I would like to end my statement with a cautionary statement race on testimony provided just last year by the administrator in hearings before the committee where she suggested that sba should restart its direct government lending program. I urge committee members to study the current conditions of the federal direct student loan program before considering such a move. History has shown government lending can lead to extensive loan modifications and even debt forgiveness to mask nonperforming loans.
▶ 0:34:01Loan forgiveness does not manage that, it passes the cost onto the taxpayer. Iowa banks are committed to providing access to sba financing to small business communities all we applaud efforts to streamline loan processing and expand in a safe and sensible manner the sum -- number of small businesses the program can assist. We urge congress and the small business administration to restore prudent underwriting standards and ensure proper oversight for all of its lending partners.
▶ 0:34:30I look forward to your questions and thank you for the honor of art is abating in this hearing. Senator markey, my daughter is a lord it's grad. Ask thank you. Now we will recognize Mr. lanza-weil. Your recognize for five minutes of your testimony. >> thank you distinguished member of the committee. I appreciate the opportunity to speak with you today.
▶ 0:35:02I'm a recovering banker and president of common capital, a 35-year-old nonprofit loan fund based in springfield, massachusetts. Common capital makes loans to small businesses that can't get the financing they need from conventional lenders, such as banks and credit unions. We make loans up to $300,000 and provide no cost business education and training to our borrowers.
▶ 0:35:28The business assistance program is primarily funded by annual grants from the sba micro loan processing. Common capital serves a four county region with 820,000 residents. Our annual operating budget just shy of $2 million. Even though we are a small organization serving a fraction of the geography, common capital is the leading sba micro lender and community advantage member in massachusetts.
▶ 0:35:59Since our founding in 1990, we made over 900 loans totaling more than $35 million to small businesses in western massachusetts. Not just sba loans. Loans that have helped create or retain 2200 jobs. At the end of 20 to four, common capital loan portfolio -- portfolio totaled $9.4 million. A little smaller than first national bank. 54% of loans receivable were sba microloans or community advantage loans.
▶ 0:36:29By itself, the ca loans make up 34% of our portfolio. Common capital lending is high-impact. That includes rca loans. 87% of the ca portfolio dollars is loaned to businesses owned by people with low to moderate income or located in lmi census tracts. 73% is loan start up businesses. 47% are women businesses.
▶ 0:37:0117% of veteran owned businesses. Common capital was one of the original community advantage lenders. Since making her first ca loan and 2012, we made 41 loaned a month totaling 5.3 with only one loss. The community advantage program helps us fulfill the mission of creating economic opportunities for people with low to moderate income by increasing access to capital for the small businesses they own. Here's a story about one of rca loans.
▶ 0:37:33Alan had worked in construction in rural western massachusetts. For over 35 years. In 2019 he had an entrepreneurial seizure and decided to open his own timber frame construction business. After three successful years, significant supply chain issues in higher prices on construction materials resulted in losses on a large fixed price contract.
▶ 0:37:56But demand for his craftsmanship continued to grow, so the business saw financing for equipment and working capital from their bank, was unable to help them due to their recent losses. He turned to common capital. The path was challenging because the business assets available as collateral or well short of the underwriting requirements. Common capital was able to offset the shortfall within a 5% community advantage guarantee.
▶ 0:38:23Today this rural business retained its six employees, hired new ones, and is thriving. And as this story illustrates, regular financial institutions can help every business that applies for a loan, and nor should they. Banks necessarily say no to some applicants to protect their depositors and shareholders and contribute to the safety and soundness of our financial system. Yet banks and credit unions are our primary source of referrals.
▶ 0:38:53We don't compete with banks, we support and augment their customer relationships. Referring banks keep their customers as depositors and provide banking services to these businesses. When we provide a loan to a bank's customer, it is a win/win/win. For I conclude, I want to tell you another story. Celeste and jessica had 30 years of experience working as nurses in and around springfield. In 2021, they recognized the growing need for home health care in their urban communities.
▶ 0:39:25They responded by starting their own home health care agency. They could not obtain financing from a bank due to being a startup and a lack of sufficient collateral. Once again, common capital turned to the community advantage program to overcome these challenges and help entrepreneurs start a business providing essential health care services and creating jobs.
▶ 0:39:48Senators, as I wrap up, I want to tell you that too many small businesses and business owners hearing no from a bank successfully search online for easy money. It is available, expensive, and harmful to a business community.
▶ 0:40:04To combat this, common capital and other community loan funds tryon fill the gap with our help, the businesses are creating jobs, generating economic activity, and paying taxes. They continue to be bank customers. If they do well enough, they will become bank borrowers as well. We accomplished this work with the support of the sba.
▶ 0:40:29Continued success and success of the small business community in western massachusetts depends upon the availability. I urge you to continue supporting the community advantage program, to expand it some more mission focused lenders like common capital can increase access to capital for low to moderate income and low wealth entrepreneurs. Thank you.
▶ 0:40:55>> we will move next to sam's, and you are now recognized for five minutes of testimony. >> chair ernst, ranking member markey, and members of the committee. Thank you for the opportunity to test -- testify at today's hearing. My name is itzel sims. I'm director for for security bank, headquartered in searcy, arkansas.
▶ 0:41:20I'm testifying today on behalf of american -- association, arkansas bankers association, and for security bank. Small businesses are the backbone of the american economy. The sba program helps small business programs that may not have small capital and so they can grow and create jobs.
▶ 0:41:42In my 26 year of making loans to small businesses, I'm proud of the work we do at two to assist businesses across arkansas with 7a and other small business loans. First security is a private health community bank with $1.5 billion in total capital, $8.13 billion in assets, and 1000 employees throughout arkansas. After holding several lending positions, I joined for security bank and started a lending platform for 7a, 504, and express loans.
▶ 0:42:12First security is right now a top 10 sba lender in arkansas. This is a very important time for 7a program. Two years ago, sba lifted the moratorium on the number of non-bank lenders that can participate in a 7a program while loosening underwriting standards for these loans. It has experienced increased defaults since those changes. Particularly when loans originate from non-lenders.
▶ 0:42:40This played an important role in strengthening the program so all lenders make 7a loans in a safe and sound manner that helps small business gain access to capital. Here are our recommendations for improving the program. In 2023, sba lifted the moratorium on the number of nonbanks who can participate in the 7a program. Granting six new nonbanks to participate in the program.
▶ 0:43:05At the same time, the agency also loosened underwriting standards for loans of $500,000 or less. This contributed to a rise in default rates, data compiled showed 7a loans originated by non-bank lenders had a default rate of 8.1% in 2024, which is more than doubled the default rate originated by banks in 2023.
▶ 0:43:29Sba should return to the more robust criteria for underwriting 7a loans that had been in place prior to 2023. Moreover, the agency focus on increasing the number of inks that participate in the 7a program instead of new non-bank entrance. 7a should also reinstate the loan authorization as a required document for 7a loans.
▶ 0:43:55It should reinstate the requirement that 7a small business owners provide a 10% in cash equity injection with a startup, or when the borrower is purchasing existing business. To increase sufficiency, sba should reinstate the franchise directory, a valuable resource that assisted lenders with determining the legibility for a 7a loan before it was discontinued in 2023.
▶ 0:44:19Although the focus is on strengthening the 7a program, the small business lending landscape continues to be threatened by the cfpb ample mentation of section 1071 of dodd frank. Section 1071 requires financial institutions to collect and report detailed data on each application for small business credit, including the race, sex, and ethnicity of the business owners. The cfpb rule expanded the 13 data points required by congress to 81 data points.
▶ 0:44:50For each applicant for credit. This will significantly increase the cost of credit, decrease the availability of credit, and make it harder for us to serve small business customers. Congress should repeal section 1071. In conclusion, we support the committee goal of strengthening the program and facilitating small business lending more broadly.
▶ 0:45:14We urge congress to ensure the sba reinstate previous underwriting standards on seven a loans, not grant additional non-bank licenses without a demonstrated need and proof that agency can effectively supervise new entrants, take the actions to improve efficiency of the program provided in our testimony, and repeal section 1071 of dodd frank.
▶ 0:45:41It would strengthen small business lending and enhance the ability of banks to make critical loans that drive economic growth in our nations communities. I appreciate the opportunity to testify and look forward to your questions. >> thank you very much. Now miss guerrero. You're recognized for five minutes. >> thank you. I am a licensed into health counselor and entrepreneur in massachusetts.
▶ 0:46:10I'm honored to be here and talk about my experience with the sba community advantage loans through common capital. My business is calling for resilience. A mental health clinic that provides outpatient mental health services to black indigenous people of color, lesbian, gay, trans, queer, and others with identities, immigrants, first-generation people, and our allies. What sets us apart is our team members represent the communities we work with.
▶ 0:46:39This brings about cultural compensate not just from education, but shared expenses with our clients. I hold a bachelors of science degree from university santo domingo in the dominican republic. And a masters of science in mental health counseling in massachusetts, go falcons. After graduate school, I worked in community mental health for three years providing outpatient services.
▶ 0:47:06After completing the necessary hours in passing the licensing exam, I obtained my license to practice mental health counseling independently in massachusetts. In 2016, I established a public practice marking the beginning of my entrepreneur journey as a sole practitioner. My practice filled up quickly as clients discovered me through the psychology today.com providers directory.
▶ 0:47:31In my profile, I discussed my therapeutic approach and comfort in working with immigrants, people of color, members of the lgbtq+ community like myself. I noticed clients soft me out primarily because of our shared identities. In 2020, due to the mental health crisis resulting in the pandemic and black lives matter movement, increase for services increased two a day to 20. My practice was packed.
▶ 0:48:01And I wondered where to refer individuals to get support based on identity affinity. I realized there was a niche in the market not being addressed. That is when resilience call was born. If we are going to do this, it would be done right.
▶ 0:48:20My company will have multiple practitioners and be the work environment I always dreamed of the humanity of the clinician will be front and center because happy and healthy clinicians produce better therapeutic outcomes. I will do things differently and go against industry standards. The guaranteed bimonthly paycheck with a salary that exceeds the living wage for our county based on the m.I.t. Living wage check in later.
▶ 0:48:46A yearly inflation raise will be essential to prevent a pay cut and the annual race would incentivize meeting productivity goals. Both part-time and full-time employees will have access to health and dental care. The company will reimburse continuing education credits as 15 ce's are required to maintain licenses. Now we are in year three, we are able to offer 401(k) to our employees. Burnout is a significant issue in the mental health field.
▶ 0:49:15Leading to frequent turnover and mass exodus from the profession. I recognize establishing reasonable and sustained will productivity expectations is crucial. Furthermore, supporting and encouraging clinicians private practices is essential for maximizing their earnings and increasing representation from the communities in the field. In other words, my team embers were not living color for resilience because we are a lousy employer, but because they were ready to self actualize professionally.
▶ 0:49:43The idea was there and it was good. But I needed capital. So I wanted to talk to my community bank of 15 years. I sat down with a person from commercial lending, he told me it was an excellent idea, but they did -- startups. To lend me the 300 k I needed to start my business, I would need to have assets that amounted to that much, which I did not. The bank told me about common capital.
▶ 0:50:11I went to common capital's website and filled out a simple form. Then with a business planning hand, I met with them. Supported the idea and told me they would work me to secure the funds I need for the reality. Common capital helped me secure the community advantage loan for $250,000, and a $50,000 micro loan at a six-year turn at 7.5 interest rate.
▶ 0:50:36In addition to the loans, common capital helped us get marketing and technical assistance help from a third party contribute into our recruitment efforts. From the very beginning, colorful resilience have submitted monthly profit and loss and balance sheet reports to common capital, helping people become accountable as we go. Common capital invested in resilience and we continue to experience support to this day.
▶ 0:51:02On february 23, colorful resilience llc became a registered business entity in august of that year, we started seeing clients. According to the boston business journal, it is the 27th largest lgbt owned business in massachusetts. We are a profitable company currently employing 50 people and on track to hire three more full-time clinicians.
▶ 0:51:26We have about 550 active clients and 3000 people who have had access to care because we access. Mental health is primary care. Clients adequate he supported at a patient mental health level rarely need to access higher, more expensive levels of care like hospitalization, inpatient, or like the essential program. We keep the cost of mental health care down. We don't depend on government grants to function, and we pay taxes.
▶ 0:51:57Businesses like colorful resilience keep the american economy going in the right direction. The sba community advantage loan changed my life in the lives of many others. I'm great this program exists and we have access to it. Please continue to support organizations like common capital so they can make businesses like mine possible. Thank you. >> thank you. Thank you for your work in brain health. We appreciate that.
▶ 0:52:26Now we will move on to the question and answer portion of the hearing. I will recognize myself for five minutes for questions. I will start with Mr. fitzgibbon. As you know, the biden administration significantly weakened underwriting standards in the sba 7a loan program. Since those changes were implement it, the 12 month default rate has more than doubled.
▶ 0:52:55The early default rate has almost tripled. How important are strong underwriting standards to the long-term stability of the 7a loan program? >> thank you, senator. I think prudent underwriting provides the foundation for long-term stability. Other factors like guaranteed fees and so on. But not in -- not as important as underwriting. It is truly a cornerstone of managing debt. >> that is good. Ms. sims, to you.
▶ 0:53:28Thank you for being here today. On previous administration allowed additional nonbanks, including finn tech firms, to participate in the 7a loan program. As a community banker, how do your ardent -- underwriting processes differ from non-bank lenders such as finn tech firms? How do these differences affect loan performance in the 7a loan program? >> I forgot to push the button.
▶ 0:54:02Community bankers, we live, we dine, and we use the services business owners have. So we see people when we provide loans, we are providing them to people. We are trying to find financial solutions and complement our banking needs through sba programs, depending on how much assets they have, how much capital they need. Having that availability is imperative for us. The credit underwriting is the same for sba lending.
▶ 0:54:33We have to make sure the loan can be repaid back read a lot of times entrepreneurs need education, they need to know how much debt they need to have, they need a budget. I like the saying if you don't plan, you plan to fail. A lot of times business owners need guidance has a community banker to either say you need to start with us, or you may need to start with the community advantage lender to get started.
▶ 0:54:59Just being there to educate the client makes us very different than finn tech, which is where my concern is. Finn tech is more about a predatory approach and trying to give money as fast as they can, and they don't really see them as human. They just see them as another source of financing. That is where my concern is the most. The fact they are taking the human approach away from community banking when you allow finn tech to take over.
▶ 0:55:27>> I appreciate that support, thank you. Mr. fits given, the sba has had four straight quarters of negative cash flow. Over roughly that same time, up from borrowers fee revenues have decreased by 13%. While loan purchases which occur when sba has two fall to loan from a lender have increased by 73%.
▶ 0:55:51How concerning are these trends, and what steps need to be taken to ensure the 7a program continues to operate at zero subsidy from the taxpayer? >> thank you, senator. In four quarters of data, you cannot draw every conclusion, but it is all we have. It is alarming for -- in comparison to the other.
▶ 0:56:16I think looking at borrower fees and lender fees and reintroducing them is probably necessary. I would say the cost of inaction is high. Regardless the cost of the taxpayer, every loan that should have been made that defaults ruins the financial life of that small business owner. You can take a wait and see approach to see if things normalize, but there is a human cost that to me seems on advisable. >> now I would like to ask a question to the lenders on the panel.
▶ 0:56:48Over the last five years, we've seen a dramatic expansion in the use of lender service providers by sba lenders. They assist sba lenders by referring processing and servicing loans and often increasing the volume of sba lending. Does your company utilize an lsp, and could you talk about the proper role of an lsp assisting sba lenders?
▶ 0:57:17Friend -- and I will start with you. >> no we don't. >> Mr. fitzgibbon? >> we don't use them. I think they play a helpful role if the lender they are partnering with has good guardrails. But I think combined with a finn tech lender, it is all about churning volume, that they can be part of the problem. >> I'm starting an sba department and the community bank is daunting.
▶ 0:57:47It can be very alluring to look at an lsp. I looked at them at one time when I was starting the department. But it is difficult to keep consistency of your culture, who you are as a bank when you outsource it to somebody else. Keeping that consistency and culture of your bank is out of your control. A lot of times the customer experience is very bad customer service because they are not only dealing with us, they are dealing with an lsp. In the secondary market they are not able to renegotiate their interest rate.
▶ 0:58:19So they can also put guardrails on that. Lsp's do have a sense of purpose. But they can also abuse that situation. We do have to enter that cautiously. >> thank you that is helpful. >> we do not use lsp's. >> thank you. I will turn it now to ranking member markie for your questions. >> thank you so much. Great news. Really great news.
▶ 0:58:49In the united states last year, the biden administration, 886,000 jobs directly related to 7a. Either created or retained. Great number. Another great number. In donald trump last year before covid, the default rate on 7a program, 2.7 5%.
▶ 0:59:13Last year, the last year of the biden administration, 2.76% default rate. We do admit the default rate went down 1.32%. At the height of covid. That was because of this great committee's work. Passing the ppp program, we were actually able to lower the default rate because of our actions to help those small businesses. But it has returned to normal.
▶ 0:59:47Trunk 2.75 percent, biden, 2.6%. We will give trump the win. He wins in that one category. But we are back to normal in terms of the seven a program. We should be very proud of the work all of these business people are doing out there. The sba committee advantage program has demonstrated success making small dollar loans to small business owners that struggle. We see the story in springfield, massachusetts.
▶ 1:00:18The lender and the recipient creating some capitalist magic that otherwise would not exist. These lenders don't just provide loans, they provide financial help, marketing help, technical assistance that otherwise miss guerrero and people like her creating 886,000 jobs would not otherwise have, which is kind of this brilliant construct we have.
▶ 1:00:51You said in your testimony you lend to people, not paper. Can you look house, capital has approached a loan to small business contrast with a conventional lender? Wax absolutely. We are a high touch lender. It is about building a relationship with a borrower, an applicant. First day on the job as a brink databank trainee in 1986, a lender who smelled like cigar smoke pulled me aside and said you have to know this. Know your borrower.
▶ 1:01:22I think sometimes institutions it are not here to bash. We lose sight of that. Getting to know that person as a human being. Getting to know them beyond which a credit report is printed is so important. We invest a lot of time, it is inefficient, slow, high touch, and highly effective.
▶ 1:01:53>> I agree. I need student loans prayed I was sitting next to my mother and father in malden, and Mr. whitworth, the banker, he said you paid every month on mortgage. So we trust you, we give you the loan -- high touch. Because they knew the customer. Ms. guerrero, talk about how you were able to be helped by Mr. lanza-weil. >> gladly.
▶ 1:02:23Common capital has been super helpful. The truth is I really don't know how we would exist as a business if common capital and the sba community advantage loan program was not available to us. I like the fact the support we received from them. You told me earlier there were nine people in your team read I don't know the nine of them. But I know six of them by name.
▶ 1:02:55I know how to get a hold of them for questions or anything like that. That is just the relationship I don't have with my community bank. >> give us one quick example of something they could help you to do that you would have had no capacity as a startup, small business. >> exist. Sincerely.
▶ 1:03:15Who would have given me -- my other option to get the money to start my business would have been a predatory lender that would have given me a really high interest rate and terms not really conducive to profitability. It is simple as that. >> you could have found them in springfield, massachusetts? >> you can find them anywhere.
▶ 1:03:40>> you are a perfect example of a wonderful system creating 886,000 jobs working with the default rate equal to the trump years. Which is an incredible achievement. It really helps to show how america can be great in helping startups to get over that financial hump. >> thank you, ranking member. I want to stress the early defaults are really the issue we are getting at.
▶ 1:04:08The last three years, loan defaults are rising faster than pre-covid levels. In the program is losing money for the first time in a dozen years. So it is something we need to scrutinize and understand why this is occurring. So we will go next to senator husted, recognized for five minutes of questions. >> thank you, welcome to all of you. Thank you for being here today.
▶ 1:04:39I have a background overseeing small business development center, a background on the board of community bank, where I was on the loan committee. I know how much our regulators scrutinize what loans we make and what loans we don't make.
▶ 1:05:03And community banks around the country are very close to their customers and they know these issues quite well. But what I don't know well, I have only been a senator for four weeks. So I'm trying to catch up on all of the things that happened in the past. And I know Mr.
▶ 1:05:25Fitzgibbon and miss simms talked about rule and fee changes and it happened under the biden administration p I want to understand that better. How that impacted the 7a program. Just what the exposure and the risk of. If you can help educate me a little bit more about what that means, the impact. Mr. fitzgibbon, I will start with you.
▶ 1:05:54>> briefly, the rule changes reduce the underwriting criteria and over the last couple of years, the guaranteed fee and lender fee was waived up to I think $1 million, no guarantee fee to borrower of two $1 million. This year is no lender fee up to $500,000. Those are fees that support the program. In a sense, skin in the game for the borrower. They have been waived for a couple of years.
▶ 1:06:22The concern is the lesson underwriting criteria has allowed -- has resulted in loans being made that should not have been made. That is driving up delinquency and default rates. >> when you get insurance, you have to pay a premium to have insurance. Think of the government guarantee in that sense. Is it typically when you are asking for a government guarantee, protection on the loan for the bank?
▶ 1:06:52I have been an sba lender for my entire career. I have seen the fees my entire life where sba has provided this guaranteed insurance to the lender, a.k.a. The customer gets the insurance as well. Protection on their side and benefit for the customer. Typically because we don't want it to be a burden on taxpayers, they self fund through these fees.
▶ 1:07:19That is really important to understand, we don't want the fees to be inappropriate, but we want to make sure they are not creating taxpayer money -- impacting the taxpayer money. >> in summary, you think it would improve default rates and help sustain the programs -- >> sustainability is the key. We want it in the black, not to read.
▶ 1:07:43If you see problems, we have to reevaluate the situation when it comes to the underwriting. That is something else I have never seen the sop dramatically change, to do what you do, that is the rule. It makes it very complicated to know because I as a committed two and operate differently than another community bank and having the regulations also loose.
▶ 1:08:11If you do what you do also doesn't provide a level playing field. That is important to understand, the sop has changed, and if you feel comfortable providing loans that are what I would say not prudent, you are allowed to do that because you are not regulated to the same way community bank that has high regulations. >> do you have a thought on that? >> take you, senator.
▶ 1:08:40I don't know much about the fees. But I know about underwriting standards. We are required to maintain underwriting standards. Even when the rules change in the standard operating procedures. I think what we are hearing is there are some lenders who have not followed their own prudent underwriting guidelines. That is perhaps not the fault of the program, it is the fault of the lender.
▶ 1:09:08I would be cautious about throwing the baby out with the bathwater. Our default rate has not changed. The default rate has not changed because we are very focused on making good loans in our market. It sounds as if there's a lot of lenders who are not doing that. And they should have more guidance and be more careful.
▶ 1:09:35I would hate for their imprudent lending to harm our prudent lending. >> thank you. >> thank you, senator. Senator rosen. >> chair ernst, thank you ranking member markey and all of you for being here. Just spending your life working with small businesses, and your work in the mental health space is so needed. I want to give a plug for nevada's credit union and community banks. I know them all so well.
▶ 1:10:06During the covid crisis, but all the time, they are friends, neighbors, they know people have relationships with them. They know if a family emergency happened and they cannot pay something now and they say it later. They really want to see communities thrive. I know the importance of this kind of lending and that special touch you can give is very meaningful.
▶ 1:10:33I think we can all agree the 7a program is a vital source of funding for small businesses and nevada businesses have received over 700 loans totaling $355 million last year alone, up 95% of businesses in nevada are small businesses. Although we are known for the big casinos, 99% are small businesses. It should be a shared bipartisan priority for the program to run as efficiently as possible.
▶ 1:11:02I'm really thankful for your testimony so far. But it is not surprising loan defaults to liquid sees are more likely in times of economic uncertainty and small businesses may face declines in sales or subsequent cash flows, mental health of course I think you will stay pretty steady. Similarly, poor economic conditions can put a strain on lenders who might be tightening criteria and reduce loan volume.
▶ 1:11:30So we might look at looming tariffs on reliable -- unreliable federal funding, economic uncertainty is critical. We understand the impact it will have on all of you. So can you discuss how the broader economic picture in this country is going to affect the borrower's loan performance in your lending activity? >> thank you, senator. It is uncertainty.
▶ 1:11:57The uncertainty existing in the marketplace today because of so much rapid and chaotic change making it hard for us to plan. I don't know what the sba budget will look like. I hope as we are planning how much money we can count on so critical to supporting entrepreneurs.
▶ 1:12:24The business education training we provide is focused on helping people create and understand and use financial statements and management of their business. She knows how to be an exquisite mental health counselor, but probably did not know much about quickbooks before she came to us, or how to market a business.
▶ 1:12:45>> she learned quickly, we will ask how the business environment impacting you and the uncertainty impacting you, you are working together giving her the training and resources, understanding how to be successful, how you are feeling. >> it is true the need for mental health services is there.
▶ 1:13:02Also true the economic landscape is making -- for example, I notice my clients instead of booking weekly are booking biweekly because they cannot afford the co-pay or have a hard time affording the deductible. Our people are losing their job, meaning they are losing access to health care, or there could be an executive order like freezing government funds, which affects medicaid and medicare, and that is 20% of my income.
▶ 1:13:33So there is definitely an impact in my business. >> I want to go back to something you just mentioned to be important of the sba resource partners. It makes you successful, you are a great counselor, but maybe you did not know quickbooks when you started. We have to bring that critical support and training for our small business owners veterans business outreach centers, small business development center, women's business centers, I was proud to bring the first ever veterans business outreach to nevada. Almost a quarter million veterans.
▶ 1:14:05C1 and really to find -- offer that technical assistance of they can do what they do. I know I have a short time left. Can you talk, Mr. lanza-weil, about the importance of this financial management counseling? I know all of you can speak to this but that is a big part of what you are helping a small business owner do, how critical it is we keep these resources flowing. And payback the lows -- loans.
▶ 1:14:30Mr. Lanza-Weil: Many of our applicants and borrowers have received services from our local small business development center network, and from our women's business resource center which is the center for women in enterprise which serves all of new england. And has had to lay off already because they are not getting the federal funds they need on an ongoing basis to pay their staff to provide services to small businesses.
▶ 1:14:54Mr. Lanza-Weil: The way we mitigate risk in a community meet -- community development institution is with hands-on business assistance and training. By making mayrena a better business person, she is also a better mental health counselor and a more sustainable viable business in the long-term.
▶ 1:15:14Mr. Lanza-Weil: In this uncertain time, if the economy worsens, banks will tighten their lending as they always do, and cdf I loan funds which are countercyclical, will see an increase in demand. The increase in demand means we will need more help from our service partners to serve the businesses that we are able to make loans to.
▶ 1:15:34Sen. Rosen: Do believe small businesses are the engine of our economy. Thank you for having this hearing, madam chair. We need to continue to invest in the good work you are doing.
▶ 1:15:43Chair Ernst: Thank you. Senator booker, you are recognized.
▶ 1:15:47Sen. Booker: I was excited to get on this committee when I got here because I spent so much time with the mayor trying to get access to capital for businesses in the city of newark. We were able to see an explosion during a recession of new investment into our city, entrepreneurs succeeding. It was one of the best experiences I got on the committee and it has been one of the better bipartisan committees I've had here, just finding ways.
▶ 1:16:15Sen. Booker: Because all of us know in our states, there is so much investment where the people. I remember the secretary of state and I working in the midst of the pandemic with ppi loans coming out. We found an arbitrary rule that disbarred people who had been just as involved, they had to be at it for five years before they qualified for a ppi loan. That was arbitrary. My recumbent -- my republican colleagues agreed and we got it fixed under the trump administration.
▶ 1:16:47Sen. Booker: It's a great environment for us to do good work. I am a person who believes in entrepreneurialism and the power for communities of capitalism, the double, triple, quadruple bottom lines we find. I want to jump into areas quickly. One concern I have having had so much experience with micro loan programs inspired by the bank in my community, I'm really worried that we have had 15 years of mission-based lenders through the community advantage program that works closely with small
▶ 1:17:17Sen. Booker: Business to get the capital they need, which is often small. In january, the sba announced it would increase the loan maximum up to half $1 million, which I think will have a stunning impact. I am hearing from lenders that they have not had communication from the sba on whether they can offer increased loans to small business owners. There is a lot of delay going on.
▶ 1:17:42Sen. Booker: I got an extraordinary note from a small business owner in new jersey that said "last week, we had to decline a loan request from a farmer in mulch a hill who sought to expand his seasonal open air farm into a larger year-round operation. The business was doing well despite its seasonal limitations. His goal was to provide his community with high quality produce plants, and especially groceries year-round instead of in his current five month operation.
▶ 1:18:13Sen. Booker: However, during a review, we determined he required more than 350,000 dollars to complete renovations, purchase equipment and secure necessary working capital for suspect -- for successful expansion. He was concerned for the risk of undercapitalization. We had to decline the request.
▶ 1:18:33Sen. Booker: We believe the bart needed community advantage of at least $450,000." it is disappointing small business in new jersey's -- small businesses in new jersey are missing out with these possibilities. I'm hoping you can shed light on this, Mr. lanza-weil. Have you been able to offer increased loan amounts in addition to the small ones that you are probably familiar with? What the impact to be for folks?
▶ 1:18:59Mr. Lanza-Weil: For a long time, our loan limit has been $300,000. There has not been in a effect in the past for the changes in the loan limits. But we would like to raise our loan limit. Internally for all sorts of loans. We find most of our larger loans and a larger loan for us as a loan over $75,000.
▶ 1:19:26Mr. Lanza-Weil: If we are going to raise our loan limit, we need an increased loan limit on the community advantage program to be able to continue to help low asset and low wealth individuals.
▶ 1:19:37Sen. Booker: I think there is a lot of common sense, fixes. I have other questions I will ask for the record that I don't think we will be able to get through. And the chairman is rough on me, to particular ticks on new jersey. I hope you all will respond. I want to ask the four of you, because I know your heart and determination, you do this work to see communities flourish, and it means a lot to me that you would come down here and testify before the united states senate. I know time is money.
▶ 1:20:08Sen. Booker: So it means a lot to me that you are here. I hope you will be as the hearing is open, I hope that you will be responsive to the other questions I have that I think can inform this committee, which I hope continues its record of working in a bipartisan manner to help folks out. Thank you.
▶ 1:20:24Chair Ernst: Thank you, senator booker. My ears perked up when you said farmer.
▶ 1:20:29Sen. Booker: I know.
▶ 1:20:31Chair Ernst: I was so invested.
▶ 1:20:32Sen. Booker: The largest industry.
▶ 1:20:34Chair Ernst: In new jersey, folks. Thank you, senator booker. We will recognize senator hirono for five minutes.
▶ 1:20:47Sen. Hirono: Thank you, madam chair. I just happen to have met with some farmers from hawaii. They had unique challenges because we are in the middle of the pacific and there are all kinds of invasive species, including access deer and people don't know that we have sheep and others.
▶ 1:21:07Sen. Hirono: Be that as it may, I think we have somebody who supports the support we can get from sba, particular to entities such as farmers and the people in rural areas. For Mr. lanza-weil, I heard you say that you would want the loan limits to be raised. What is the loan limit that you are working with right now?
▶ 1:21:31Mr. Lanza-Weil: I believe it is $350,000, I believe.
▶ 1:21:35Sen. Hirono: You would like that raised to what? End it requires congress to raise that limit?
▶ 1:21:40Mr. Lanza-Weil: Don't know who is required to raise that limit. 500 would be helpful to us. 500,000 that is.
▶ 1:21:47Sen. Hirono: Is that based on your own experience, that the amount of loans that people request are more in the 500,000 range as opposed to the 300,000 range?
▶ 1:21:58Mr. Lanza-Weil: Senator, when they come to us with our $300,000 loan limit, we see them scaling their plans to what they think they can get from us. If we have a higher loan limit, then they might reach further for the stars. Of course, everything has gotten more expensive over time. That is just the nature of money and time together. The time is the value of money, which they taught in business school.
▶ 1:22:28Mr. Lanza-Weil: Our $300,000 loan limit has become obsolete. $300,000 does not necessarily help launch many small businesses. We need to see more resources for that.
▶ 1:22:36Sen. Hirono: I saw Ms. guerrero, you were nodding your head.
▶ 1:22:40Ms. Guerrero: Definitely. I could have used $500,000 at the beginning of my business. The reason I say this is because I got the $300,000 from common capital. Two years eight or, I needed an additional $100,000 from another lender. If I would have had that money from the beginning, that would have been much easier for me.
▶ 1:23:01Mr. Lanza-Weil: If I may, excuse me for interrupting, as a business grows, if they outgrow us, at least in western massachusetts, there is not another resource. We need to have more resources so we can help the businesses as they grow, not just as they established.
▶ 1:23:17Sen. Hirono: That makes a lot of sense. Ms. guerrero, you got your landed -- your loan for the community advantage program, which was created not long ago and it was started as a pilot program. Could I ask how much was your loan from the community advantage program?
▶ 1:23:32Ms. Guerrero: They gave us $250,000. Then I had an additional 50 grand micro loan.
▶ 1:23:42Sen. Hirono: Without the community advantage program, you would have had a hard time getting your business off the ground?
▶ 1:23:50Ms. Guerrero: It would not have happened. Because I was not a full creditor -- I was not going to fall prey of predatory lending.
▶ 1:24:01Sen. Hirono: How are you doing now?
▶ 1:24:05Ms. Guerrero: We are doing really well. We are really excited. I will say, we are in conversations with boston impact initiatives a venture capital firm, that works with minority owners. They are going to do a structured equity deal with us, and just give us money so we can duplicate -- have double the workforce that we currently have. We are about to grow significantly.
▶ 1:24:34Sen. Hirono: Congratulations. I really wish you the best. Mr. lanza-weil, can you speak a little more about the importance of community lenders? Because community lenders in a state like hawaii are very important. That is where your experience lies. Can you talk more about how important these kind of lenders are?
▶ 1:24:54Mr. Lanza-Weil: Absolutely. Any high touch lender is very important. I started my career at a community bank in the san diego area. To the extent the bankers on either side of my -- me that have. . A high touch approach I think that is very important. On the continuum of credit, we need everything from community lenders that are certified cdf I's and other community loan funds through community banks and credit unions.
▶ 1:25:21Mr. Lanza-Weil: It is the know your borrower conversation that I think you are not in the room for yet, the first rule of lending is know your borrower. Smaller banks, community banks and community loan funds get to know their borrowers. That enables them to say yes more often and manage the risk when they do say yes.
▶ 1:25:40Sen. Hirono: For the two witnesses sitting to the left and right of you, are you both community lenders?
▶ 1:25:47Ms. Sims: Yes. I am an sba lender that works for a community bank.
▶ 1:25:52Sen. Hirono: So you would agree that community lenders like yours are very important.
▶ 1:25:57Mr. Fitzgibbon: Yes. We are community bank in the middle of iowa.
▶ 1:26:00Sen. Hirono: Thank you.
▶ 1:26:03Chair Ernst: Thank you very much. And I think we will go ahead and wrap our hearing. Ok. I want to say thank you so much for the witnesses for being here today. This was a very productive conversation. Really a sheet your time and input to the community to -- committee today. I ask unanimous consent that the record of today's hearing remain open for two weeks for members to submit questions, revise and extend their records, and submit additional information into the record.
▶ 1:26:34Chair Ernst: Without objection, so ordered, and with that, the committee on small business and entrepreneurship --
▶ 1:26:39Sen. Markey: Can I make a statement?
▶ 1:26:41Chair Ernst: Oh! I suppose so. We will allow. Proceed.
▶ 1:26:48Sen. Markey: Thank you. Just want to say the community advantage program is a pilot program. Not the law. And the senate small business committee, in its wisdom come in 2013, passed out of this committee by 18-1 the codification of the community advantage program. It was blocked on the floor by senator paul, which is a common fate for many pieces of legislation, I might say.
▶ 1:27:18Sen. Markey: But we could work together once again to try to pass that bill. And I just wanted to note even in early defaults, it was 1% during the trump administration, back in 2019, and it was 1% last year. In the biden administration. And it went down lower, actually, because of ppp.
▶ 1:27:45Sen. Markey: Even the early default is returning to where it was before covid. And the seven-day loan program is healthy. 90% of loans are being repaid, despite the short-term increases and the default rate. This rate is normalizing back to pre-pandemic levels, which is great. I just want to go back to Mr. wentworth, I remember sitting there, he looked a lot like you.
▶ 1:28:16Sen. Markey: Mr. wentworth maybe did not look like you, Mr. lanza-weil. But those old waspy bankers in new england, in a small city. My father drove a truck for the hood mill company. My mother was very mad at me for losing the full scholarship, that I should have studied harder, she said. I was sitting there and my mother said, take out as much money as you want. Because you are not going to pay it back. Your father will not take a second job. I was in congress at age 30.
▶ 1:28:50Sen. Markey: And because I went to the lars college and law school of boston, called boston college, boston college law school, I was elected at age 30. Those loans helped. I was paying back the student loans for six years as a member of congress. I was the boers member of congress. All I had was student debt. I have no other assets. He knew his lender. He knew his customer. He knew who he was loaning to.
▶ 1:29:21Sen. Markey: My mother and father. And they would make sure I would pay it back. That is the essence of who you are. You are getting people who may be the rest of the world can't quite see as well as they could. Because I know them and you trust them, you make them work at the same level as other businesses that may have those pre-existing relationships. I think you so much, madam chair.
▶ 1:29:39Chair Ernst: Witnesses, stay put. We had one member state -- come in before the fall of the gavel. Senator hickenlooper, you are recognized for five minutes.
▶ 1:29:51Sen. Hickenlooper: I appreciate you allowing the meeting to extend. I appreciate your indulgence. This is something I really care about. In a previous life, several lives ago, it's it -- I came in as a new government -- governor in colorado. Went to all 64 counties, got everyone to write an economic development plan of what they see in 50 years for their community, what should the state do to get there and we took those together and made something we call the bottom up economic develop and plan.
▶ 1:30:21Sen. Hickenlooper: It was amazing how universal the vision was. Some was obvious, cut red tape and needless bureaucracy. Sometimes it was get better workforce training, stop marketing the state for skiers, but for on for knorr's. One thing we heard everywhere was to find ways to get better access to capital, for people trying to start small businesses. Mr. lanza-weil, I will start with you.
▶ 1:30:50Sen. Hickenlooper: This community advantage program, expanding access to capital for underserved communities, it supports so many on two hours and a variety of small businesses and helps them in accessing capital. In many cases, they would not be able to find that capital anyway. They are not from a community that has a lot of family money or friends and networks already in place.
▶ 1:31:21Sen. Hickenlooper: How has the committee advantage program made it easier for common capital to reach some of these underserved communities?
▶ 1:31:28Mr. Lanza-Weil: Thank you. I recall you were in the brewery brute -- brewery business?
▶ 1:31:37Sen. Hickenlooper: A brewpub. It was a restaurant but had a brewery inside of it.
▶ 1:31:38Mr. Lanza-Weil: Three of our 41 community advantage plans have been breweries or pugs. True fact. Every single one of our 41 community advantage borrowers came to us with a weakness that we could not overcome through our standard underwriting. It is almost always a lack of collateral here we have people that have saved money for years to have their 10% equity ingestion. They have gotten the experience they need in their industry.
▶ 1:32:08Mr. Lanza-Weil: They have a good plan that is reasonable and achievable. They are buying assets, in some cases, with their loan. In the case of mayrena, it was couches and clocks. In the case of a microbrewery, it is some hard assets that have more value. Every cell business that forms needs working capital. That does not act as collateral on its own. We have needed this ea program to help bridge the gap when we have had a collateral deficiency.
▶ 1:32:38Mr. Lanza-Weil: I want to make clear, senators, that that does not cover the whole thing. The guarantee is only 75% or 80. -- 80%, or in one case, 90%. We are still taking risk, as is the entrepreneur who has put everything they have into it. If it were not for the community advantage program, we would not be able to make those loans. Mayrena has expressed that her business would not exist without it.
▶ 1:33:03Sen. Hickenlooper: I appreciate that. I salute you for all of that work. I salute all of you, really. When I read the docket last night, it was impressive. Mayrena, obviously, the small businesses are important not just for the entrepreneurs, and not just for the employees, but for the communities they serve. In many cases, they serve a niche. One of the wonderful things about small businesses in underserved communities, people lived there, they know what the community needs.
▶ 1:33:32Sen. Hickenlooper: That is an advantage many businesses don't have. You have talked about how the sba program has helped you start your business, colorful resilience. Love the title. We entrepreneurs spend our lives thinking of good titles, good names. The notion of resilience for mental health, very powerful image. How would you describe the impact of your business on your community?
▶ 1:33:55Ms. Guerrero: Well, huge, really . Because the communities that we serve, the bipoc, lgbt, have historically been underserved forever. That gap became greater after the pandemic. So, we all know that there is a mental health crisis. There is a lack of providers for the demand of mental health services.
▶ 1:34:26Ms. Guerrero: Our existence and that cultural competency that comes from working with providers that have shared identities has been huge. It is a huge impact for the community. My marketing budget is $80. $50 for my website, $30 for my psychology today directory. Because clients come to me, I don't go looking for them. That tells you the impact it has in the community.
▶ 1:34:50Sen. Hickenlooper: Absolutely.
▶ 1:34:51Mr. Lanza-Weil: May I answer that?
▶ 1:34:53Sen. Hickenlooper: I have to talk to the chair because I am out of time.
▶ 1:34:57Mr. Lanza-Weil: Mayrena's business is not the only culturally competent and focused mental health care business we financed. And we have a total of five mental health therapy businesses in our portfolio. Mayrena is very focused on people of color and others that have been traditionally underserved.
▶ 1:35:19Sen. Hickenlooper: It is a great example. I'm so glad you guys could find time to come here. I will -- I have been running around but I will watch the videos to catch up. I yield back to -- back to the chair.
▶ 1:35:29Chair Ernst: We are going to try this again. Thank you very much to our witnesses. Thank you again for being here today. Really productive discussion. Thank you for making it in before the fall of the gavel. At this time, I will ask unanimous consent, the record today's hearing remain open for two weeks for members to submit questions, revise and extend their records, and submit additional information into the record. Without objection, so ordered.
▶ 1:35:56Chair Ernst: With that, the committee on small business and entrepreneurship stands adjourned. Thank you all very much.