▶ 0:16:05Chair Ernst: We're here today to discuss the role that the small business administration's 504 loan guarantee program come -- can play in supporting investment in america's small manufacturers. Over the course of this year, the committee has examined the staggering decline of america's manufacturing sector. 40 years ago, factories across the country roared with activity, towns thrived, and america felt unstoppable.
▶ 0:16:37Chair Ernst: We were truly unrivaled as a nation. Today, many of those same factories stand idle, communities that once dependent on them fade and struggle, and millions of jobs have vanished. Today, we are seeing some of the lowest levels of manufacturing employment that we have seen in nearly a century. Sadly, we are losing more than just jobs. We are losing america's knowledge, talent, innovative edge, and tradition of industrial excellence.
▶ 0:17:06Chair Ernst: By neglecting our manufacturing sector and infrastructure, we have crippled our own ability to scale new technologies leaving us less competitive on the international stage. Simply put, we have let our guard down and it is our adversaries like china who stand to benefit. To restore our economic resilience and global dominance, we must empower our small manufacturers to lead the way.
▶ 0:17:31Chair Ernst: That starts by providing them with the resources they need to reversed this decline, and rebuild our domestic productive capacity. In prior hearings, we have explored how we can channel more capital into american manufacturing, whether through private capital committed as part of the small business investment company program, or through seven a loans guaranteed by the sba.
▶ 0:17:55Chair Ernst: Today, we are focused on one program that is uniquely suited to helping small manufacturers build and expand the 504 loan program. The 504 loan program is the primary way that sba helps small business owners by major fixed assets, like real estate, buildings, equipment, and machinery. It even construct facilities from the ground up. It gives borrowers long-term fixed-rate financing of up to 25 years.
▶ 0:18:24Chair Ernst: That kind of predictability is exactly what small manufacturers need to establish or modernize their operations. Thanks to the work of participating cdc's, the 504 program has been able to maintain a low default rate of under 1% per year. In the last five years, it has been under half a percent. That is the hallmark of a loan program that is safe, reliable, and deeply impactful. But it isn't perfect.
▶ 0:18:54Chair Ernst: Stakeholders have made clear that improvements can be made to eliminate redtape in the closing process and provide more flexibility to borrowers, especially for rural businesses. This committee has continuing loot looked at ways to build upon the program's success, including consideration of legislation introduced by senator young, aimed at streamlining the office of credit risk management's oversight of cdc's.
▶ 0:19:21Chair Ernst: Another way to strengthen our manufacturing future is bypassing that made and america manufacturing finance act, which I introduced in april, alongside senator coons. The committee reported out the bill in july. This bipartisan legislation would double the 504 loan limit from a $5 million for small manufacturers who need that capital to modernize, grow, and train a new generation of american workers.
▶ 0:19:50Chair Ernst: I know from the countless conversations I've had with small business owners that this makes a real difference. Many companies could have expanded faster, hired more workers, and invested in new technologies, if only the loan limits have allowed it. Cdc's thomas for same thing. Clients are forced to slow their growth or seek outside funding on less favorable terms, simply because their needs could not be met by what is currently allowed.
▶ 0:20:17Chair Ernst: I'm grateful that we are joined today by our panel of cdc lenders and program participants. I look forward to hearing from them about how congress can improve the 504 program, and give american entrepreneurs what they need to build a stronger, more resilient manufacturing future. I now recognize ranking member markey for his opening statement.
▶ 0:20:37Sen. Markey: Thank you. [no audio] manufacturers faring in the troubled economy.
▶ 0:20:57Sen. Markey: The institute for supply management reported the manufacturing sector shrank for the sixth consecutive month in august, as a supply crisis continues to rise. According to a july survey from the national association of manufacturers, small manufacturers, positive outlook, for their companies, has dropped to the lowest level since the height of the covid-19 pandemic.
▶ 0:21:24Sen. Markey: Since trump's so-called tariff liberation day, in the beginning of april, the united states has lost more than 42,000 manufacturing jobs. They have disappeared. We've seen this before. During president's first administration, 200,000 manufacturing jobs were lost. To hide the failing state of his economy, president trump is following thed three -- the three d's.
▶ 0:21:57Sen. Markey: He has fired the bureau of labor statistics commissioner and called to end quarterly earnings reports. No matter how hard president trump tries to hide the data, it is crystal clear that it is his policies that are hurting small manufacturers across our country. President trump's tariffs are pushing up prices, making it difficult for a small U.S. manufacturers to compete. With too many small U.S.
▶ 0:22:26Sen. Markey: Manufacturers, maga stands for manufacturers are going abroad. In may, our committee heard from julie robbins, ceo of earthquake devices in ohio. She told us she had faced tariffs as high as 185%, forcing her to consider moving production overseas. President's attack on clean energy has also fueled america's manufacturing decline. Trump's sta ended their green lender initiative.
▶ 0:22:56Sen. Markey: And the big ugly bill rolled back many of the clean energy incentives in the inflation reduction act of 2022. These incentives and programs contributed to the almost 700,000 manufacturing jobs added during the biden administration. Now president trump's sweeping attacks on immigrants are crushing the manufacturing workforce, from the largest manufacturers to the smallest of the small manufacturers in our country.
▶ 0:23:24Sen. Markey: To add to the small businesses pain, president trump's sta is adopting draconian requirements. These requirements barred small businesses with any amount of foreign investment and small businesses partially owned by people who are lawfully here, including daca recipients from getting an sba loan.
▶ 0:23:50Sen. Markey: Thiss rakes from a quarter of a century of sba policy that allowed small businesses, including manufacturers, 51% owned and controlled by U.S. citizens, nationals and green card holders to receive sba loans. These changes are creating a chilling effect.
▶ 0:24:07Sen. Markey: In massachusetts, one small business owner with a green card who was likely an eligible sba borrower decided not to apply for an sba loan because they feared their legal immigration status would be used against them in president trump, if you were serious about growing american manufacturing, he would be investing in our future, not burning it down. I agree with raising the loan limits on sba's 504 loan program.
▶ 0:24:37Sen. Markey: Or as I would like to have it be called, the economic develop loan program. And I appreciate chairman ernst and senator coons leadership on this issue and the intent of made in america manufacturing finance act. However, we should work to ensure the larger loans allowed under this legislation lead to good paying jobs.
▶ 0:25:02Sen. Markey: We should raise sba loan limits specifically for our clean energy manufacturers to supercharge our economy, make our communities cleaner, and to create jobs. May they return to their historic sba lending rules that supported immigrant entrepreneurs. And we must break down barriers and create programs that are tailored to help our minority entrepreneurs access capital. Today, I look forward to hearing from witnesses about how we can accomplish these goals.
▶ 0:25:31Sen. Markey: I thank you, madam chair, for calling this hearing and the legislation, of which you and senator coons have put forth.
▶ 0:25:41Chair Ernst: Wonderful. Thank you, make -- ranking member markey. I want to extend a warm welcome to all of our witnesses. I will now introduce our witnesses who are testifying today. I'm thankful that you all took time out of your busy schedules to join us here in D.C. and share your expertise on sba's 504 loan program and access to capital through certified development companies or cdc's. First, we have Mr. karl swanson.
▶ 0:26:12Chair Ernst: He is the president of pct ebeam and integration, which is the small manufacturer of electron beam to systems in davenport, iowa. Mr. swanson previously served as director of sales and marketing at pct engineer systems, and began his career at -- as an automated sales specialist.
▶ 0:26:35Chair Ernst: He received his bachelors degree in electrical engineering from university of illinois, and his mba from saint ambrose university. Thanks for making the trip from iola. Thank you. Ms. jean wojtowicz is the executive director director of the indiana statewide cdc. She is also the founder and president of cambridge capital management corporation, an indianapolis-based manager of nontraditional sources of capital for businesses.
▶ 0:27:06Chair Ernst: She previously served as the lead independent director on the board of directors, a veteran corporation, new york stock exchange energy holding company serving indiana and ohio. She holds two bachelor degrees in finance and real estate from the university of wisconsin, madison. I now recognize ranking member markey to introduce his witnesses.
▶ 0:27:29Sen. Markey: Thank you, madam chair. Mr. david raccio has been with cdc new england, located in wakefield, massachusetts since 2017. And is currently the senior vice president and director of sba lending. Cdc new england is one of the most active five 04 lenders in massachusetts. He brings deep expertise in helping small businesses grow. He is also a proud U.S.
▶ 0:27:55Sen. Markey: Air force veteran, serving six years on active duty and in the reserves. We thank you so much for being with us today. And Ms. hilda kennedy is the founder and president of ampac business capital based in ontario, california. It participates in several sba lending programs including the 504 program.
▶ 0:28:17Sen. Markey: She is a board member of the national association of develop and companies, and she previously worked as the director of economic development for the city of inglewood we look forward to hearing from all of the testimony that will be presented today.
▶ 0:28:32Chair Ernst: Wonderful p re-think you, ranking member markey. I would let to take a moment to explain our lighting system that is there on the boxes in front of you. There are three lights, grain means ago, yellow means you are running out of time, and red means to please wrap it up. I ask unanimous consent that the witnesses full statements be included in the record. Without objection, so ordered.
▶ 0:29:00Chair Ernst: As your written testimony has been made part of the record, the committee asks you limit your oral remarks to a five minutes. If that, Mr. swanson, you are now recognized for five minutes for your testimony.
▶ 0:29:12Mr. Swanson: Chair ernst, ranking member markey, and members of the committee, I'm humbled by the responsibility to represent the interest of the hundreds of thousands of small manufacturers that fueled the american economy. As he said, my name is karl swanson and I grew up on my family's farm. Today, I'm the president of pct ebeam and integration located in davenport, iowa founded in 1986.
▶ 0:29:40Mr. Swanson: When the original majority owner was looking to retire, the most attractive option was to be acquired by acs company. The integration was unsuccessful and when the business was getting ready to close, I found eight of my long-term coworkers willing to join me and by the company back. In november of 2018, we reached an agreement to make this a reality and embarked upon what has been a challenging and rewarding journey. We have experienced firsthand the advantages of being american owned small business.
▶ 0:30:11Mr. Swanson: In seven years, we have grown from 45 to 65 employees and have reacquired many of the critical manufacturing capabilities that were divested by the previous owner. Pct is both a systems integrator and a manufacturer of industrial electron beam systems.
▶ 0:30:28Mr. Swanson: Our machines are used in a variety of different industries where they enable energy efficient production of prepainted steel, and are used in the manufacturing of advanced medical materials, and can be used to achieve more sustainable production of lithium-ion batteries. Building these specialized machines requires a skilled workforce and specific manufacturing capabilities. 50% of the e-beam systems we build are exported. Our foreign customers often require their advanced payments to be secured by local bank guarantees.
▶ 0:31:00Mr. Swanson: Options for a small U.S. manufactured to comply with these compliances are limited. For pct, it's critical we have access to funds to support our material labor expenses throughout the lengthy production schedule. The small business administration has been a major source of support for our business, from purchasing our commercial real estate, to expanding our export efforts.
▶ 0:31:23Mr. Swanson: Following our purchase of the business, we had the opportunity to purchase our building and thus secure our company's long-term future. The sba 504 loan program was recognized by our local bank and made this purchase possible. Following further success, we do come -- we decided to expand our shop. Once again, the sba 504 was critical in helping us finance this expansion, and add more production capabilities, facilitate better material flow, and increase our capacity to assemble and test more e-beam systems.
▶ 0:31:54Mr. Swanson: Each time we look to invest in our long-term future, the sba 504 gave us a financing solution that was both accessible and affordable. Our experience shows how central the sba 504 is to long-term business growth and competitiveness. As they growth leads to bigger opportunities, our business takes on larger and more complex projects. We have experienced limitations in the financing programs that impose undue constraints on the organic and profitable growth of manufacturing firms like ours.
▶ 0:32:26Mr. Swanson: The biggest limitation we face was when our financing needs intersected with sba aggregate program gaps. For example, we received a multimillion dollar order from a customer in brazil. We needed to provide bank guarantees equal to the value of advanced payments received before shipment. The sba 7a export would have been the ideal solution.
▶ 0:32:47Mr. Swanson: After securing 2.956 million dollars in sba 504 financing, only 794,000 dollars remained available under the sba 7a guarantee. This creates constraints for our business and lenders who want to support U.S. manufacturers competing in global markets.
▶ 0:33:08Mr. Swanson: I made in america manufacturing finance act of 2025 introduced by chair ernst to increase the maximum total loan size to $10 million would directly address our situation. Having access to this additional loan capacity would provide pct with a cost effective means of supporting more export business, which in turns improves our competitiveness and foreign markets, enables us to accelerate further investments in additional staff and production equipment domestically.
▶ 0:33:37Mr. Swanson: Another limitation we experienced was sba loan approval times. The pace of business is fast, and america's small businesses must be able to move quickly to remain competitive. An agile sba equipped to scale staffing in response to loan volume, and deliver timely approvals is essential to supporting the growth and success of our nation's entrepreneurs.
▶ 0:33:58Mr. Swanson: I request that you continue your efforts to strengthen and simplify the sba 504 program to ensure the growing manufacturers can expand capacity, compete internationally and create more U.S. jobs. Thank you for considering these requests to improve the support the sba provides to american manufacturers are the 504 loan program.
▶ 0:34:16Chair Ernst: Thank you. Now Mr. rao chia yau, you are recognized for five minutes for your testimony.
▶ 0:34:23Mr. Raccio: Chair ernst, ranking member markey, and distinguished members of the committee, thank you for the opportunity to testify today. I am honored to join my colleagues from the cdc industry to discuss the sba's 504 loan program. My name is david raccio, I serve as the senior vice president and director of sba lending at cdc new england.
▶ 0:34:45Mr. Raccio: We provide sba 504 loans across five new england states which include massachusetts, connecticut, rhode island, vermont and new hampshire. We are insistently ranked in the top 15 cdcs nationwide. Since our funding in 1982, we have delivered more than 1600 loans totaling over one billion in as ba financing, helping to create and retain more than 25,000 jobs. The sba program is unique.
▶ 0:35:12Mr. Raccio: It provides small businesses with long-term, fixed-rate capital for real estate and major equipment purchases, while requiring measurable economic impact. In short, the program fuels growth, creates jobs, and strengthens communities, all while operating at zero subsidies to taxpayers and a remarkably low one year charge drop rate of 0.8%. Cdcs are proud of these accompaniments. That said, modernization is needed.
▶ 0:35:40Mr. Raccio: I would like to highlight four key areas for immediate reforms and could expand impact. Number one, clean energy. In june 2025, the sba reimplemented an arbitrary 16.5 million cap on energy product -- projects and provided no data to support such a cap. I recommend this cap be lifted to meet growing demand. We often have repeat customers and we want to make sure they have continued access to capital to grow their businesses.
▶ 0:36:10Mr. Raccio: A prime example of a business we assisted with a 504 energy efficient program was the tense borough sportscenter in massachusetts. This company has been an outstanding corporate partner, not only providing cleat -- free clinics for children of all ages but also generating significant economic activity and local jobs. To date, they have received three separate 504 loans, and continue to grow their business today.
▶ 0:36:33Mr. Raccio: In recognition of these contributions, the company was honored as a 2024 massachusetts family-owned business of the year. Number two, manufacturing and standard 504 limits. We support increasing the sba 504 loan maximum from 5.5 million to 10 million for manufacturers. If we are serious about revitalizing U.S. manufacturing, we must provide the capital tools needed for expansion. We also must address inflation and the loan limits for traditional 504's.
▶ 0:37:02Mr. Raccio: The current statutory caps have not been raised in more than 15 years. I recommend increasing these limits to $7.5 million for standard 504 loans and $10 million for manufacturers and renewable energy projects. This will account for inflation and continue to provide businesses with the capital they need to grow and create jobs. Three, citizen verification. New sba rules require businesses to be 100% owned by U.S.
▶ 0:37:29Mr. Raccio: Citizens, nationals for long-term lawful permanent residence. This change is already shutting out otherwise strong businesses. We recently saw a stone importer which was 85% owned by a female U.S. citizen, denied financing because 15% of the ownership was held by her father from brazil, who provided the original startup capital. This policy unfairly blocks U.S. citizens from accessing growth capital. Sba should revert to its long-standing more reasonable guidance.
▶ 0:38:01Mr. Raccio: Number four, down payment assistance. Cdc provides down payment assistance designed to reach underserved borrowers and businesses in low to moderate and income areas. We recently helped an african-american woman owned business secure $100,000 down payment to purchase her building for her school serving children with autism. With this port, she was able to move forward and her school is thriving, expanding and providing stability and jobs for the families who depend on it.
▶ 0:38:30Mr. Raccio: We also worked with the business owner in east boston whose project qualified as both minority owned and located in a low to moderate income community. With down payment assistance, he was able to expand his business and repurpose a mixed-use property. These stories show how powerful targeted support can be. With the 504 program, small businesses don't just grow, they build stronger, more resilient communities.
▶ 0:38:55Mr. Raccio: In conclusion, the sba 504 program is one of the most effective tools for supporting small business, creating jobs, and strengthening communities. Without taxpayer subsidy. Lifting outdated loan limits, restoring fair citizenship rules, and expanding down payment support, we can ensure the program continues to serve america's entrepreneurs for decades to come. I think the committee for your leadership and look forward to your questions.
▶ 0:39:25Chair Ernst: Thank you very much, Mr. raccio. We will now recognize Ms. wojtowicz, and you are recognized for five minutes for your testimony. Thank you.
▶ 0:39:34Ms. Wojtowicz: Chair ernst, ranking member markey and distinguished members of the committee, thank you for inviting me to join you today. I'm honored to represent the certified development company industry to discuss the 504 loan program, which is firmly focused on economic develop it and job creation. I name is jean what to which, I am the executive director director of indiana statewide cdc.
▶ 0:39:59Ms. Wojtowicz: We have founded more than 750 million in 504 loans and leverage more than $2.2 billion to over 1500 indiana companies. Many of manufacturers and companies located in rural areas. I'm also a past chair of the trade association that advocates for the 504 loan program, and serve on the board of eagle compliance, which is the fiscal agent that sells the dye ventures that fund these loans.
▶ 0:40:31Ms. Wojtowicz: Cdcs are organizations dedicated to creating jobs and growing local businesses delivering a 504 loan program. Many cdc's also deliver other federal, state, and local lending products and must invest in economic development beyond the 504 program. This highly successful public-private partnership is structured with 50% provided by a private lender, 40% through the sba backed cdc venture, and 10% by the borrower.
▶ 0:40:59Ms. Wojtowicz: This structure supports liquidity retention, and working capital preservation as a result of the low down payment with terms conventional lenders rarely provide. The structure and terms provide certainty and help borrowers menu -- and its cash flow fluctuations that come with expanding a business and employing more citizens in their communities. On march 10 of this year, administrator loeffler, along with senator young and others, kicked off the made in america tour in indianapolis.
▶ 0:41:33Ms. Wojtowicz: At aerodynamic engineering who has utilized the 504 loan program four times to support their growth and expansion, it is companies like aero diamond that are the backbone of growth, innovation, and the creators of jobs for citizens all over our country. This edc lending industry is proud of the work we are doing to support these companies, and dino the 504 loan program can do more. We have several recommendations that would enhance the program and allow us to serve more growing businesses.
▶ 0:42:01Ms. Wojtowicz: In one, past the -- number one, past the act. Cdc industry supports increasing the loan size for borrowers to $10 million. This statutory change would support the scaling of domestic manufacturing since a $10 million 504 loan could support a total project cost of up to $25 million. Number two, reduce the equity contribution for manufacturers from 10% to 5%.
▶ 0:42:32Ms. Wojtowicz: Manufacturing is capital intensive. And reduced equity requirements will encourage investment and job creation, while preserving critical working capital these companies need to expand. Number three, modernize the 504 loan size limit for all borrowers. We would ask you to consider raising the cap for all borrowers to it seven point 5 million and index it to inflation, reflecting the growth since the last adjustment was made in 2010.
▶ 0:43:02Ms. Wojtowicz: Number four, eliminate the extra 5% borrower equity injection requirement for special purpose properties. This requirement negatively impacts borrowers and sba's charge-off data shows that these properties do not present a higher credit risk. Number five, continue separating the 504 and 7a loan programs as they have separate purposes.
▶ 0:43:31Ms. Wojtowicz: The 504 program is focused on fixed asset financing, supporting job creation and economic develop. The credit elsewhere test, which is a 7a program requirement, should not apply to the 504 program. In conclusion, since 1986, the 504 program has assisted over 200,000 small businesses with nearly $140 billion in loans.
▶ 0:43:58Ms. Wojtowicz: And a total investment of almost $400 billion and the creation of 3.3 million jobs. And it has done so with a charge-off rate of only .08% for the most recent year. Enacting these recommendations will make the program more effective and accessible, allowing more small businesses to grow, create jobs, and strengthen our economy. Thank you for your leadership on small business issues, and the opportunity to testify today.
▶ 0:44:28Ms. Wojtowicz: I look forward to your questions.
▶ 0:44:29Chair Ernst: Thank you very much. Finally, we will hear from Ms. kennedy. You are recognized for five minutes.
▶ 0:44:36Ms. Kennedy: Thank you, chair ernst. Ranking member markey and distinguished members of the committee. I'm delighted to be here as well to represent the cdc industry, and to discuss the 504 loan program. The agency's premier economic develop and program.
▶ 0:44:55Ms. Kennedy: This year, and pack proudly celebrates 20 years of service, committed to serving small businesses and targeting those who own and control little productive capital as stated in the small business act of 1953. Through our partnership with sba, ampac has leveraged the sba 504 program to provide more than $2 billion in loans and creation of over 7700 new jobs.
▶ 0:45:28Ms. Kennedy: I want to focus my comments on three primary areas. Energy efficiency, down payment assistance, and citizenship. The congressionally authorized energy policy goals signed into law by president bush in 2007 are delivering significant results in california where we serve. A family-owned wholesaler and retailer of consumer goods is a shining example.
▶ 0:45:59Ms. Kennedy: They have used the sba financing multiple times and have created new jobs with each expansion. In the last two years, the wired two locations using the 504 energy public policy goal. They installed solar panels and benefited from greater cost savings. With these two recent projects, they created 33 new jobs and revitalized two vacant stores.
▶ 0:46:28Ms. Kennedy: Sba's current $16.5 million cap on energy-related 504 loans limit businesses like them from additional sba financing to expand, reduce energy cost and create jobs. Eliminating that cap would ensure small businesses can fully leverage energy efficiency, and long-term growth and sustainability. As noted, the 504 program falls -- follows a basic structure.
▶ 0:47:00Ms. Kennedy: 10% represents borrower equity. However, many small businesses, especially first-generation entrepreneurs and first-time commercial real estate buyers, they have 10% down, but the working capital is not there for growth. Ampac at, we launched our first it is possible down payment assistance program to help small businesses. I want to tell you about jerry. He is the owner of reagan's irpin barbara college.
▶ 0:47:29Ms. Kennedy: He is a navy veteran who is -- who has dedicated his life to giving young men and women a second chance by training them in barbering. As a first generation entrepreneur, when he bought his building, ampac's down payment assistance helped him to restore cash to sit -- to support his expansion and add four new jobs.
▶ 0:47:50Ms. Kennedy: I recommend establishing a pilot program under the 504 loan program for first-time commercial real estate buyers to qualify with 5% down, which would act as a floor and not a ceiling, and allow cdc's flexibility to make credit decisions that also maintain our .21% default rate as noted in fiscal year 24.
▶ 0:48:16Ms. Kennedy: I want to also highlight recent changes in the sop regarding citizenships. That is limited to 100% owned by U.S. citizens, U.S. nationals, and lawful permitted residents. I fully support sba resources going to U.S. citizens. But this change has negatively impacted some majority owned and controlled U.S. citizen businesses.
▶ 0:48:43Ms. Kennedy: One such business is a private school in orange county, founded by three partners, two U.S. citizens, and minority partner with 6.5% stake. The schools were looking for a 504 loan but we were not able to help them because of this change. I recommend restoring the sop language that allowed sba financing for businesses that were majority owned and controlled by U.S. citizens.
▶ 0:49:11Ms. Kennedy: By addressing citizenship, clean energy, and down payment assistance, as well as thoughtful adjustments such as increasing 504 size limits and for manufacturing businesses, the sba can fulfill its congressional mandate to fill market gaps for america's entrepreneurs, and build on the economic development mission of the 504 loan program. Thank you so much for the invitation. And we welcome your questions.
▶ 0:49:41Chair Ernst: Wonderful. Thank you very much. Now we will go into our question and answer portion of today's hearing. I will recognize myself for five minutes for questions and I will start with Mr. swanson. Thank you for making the trip to washington and for representing iowa small businesses.
▶ 0:50:01Chair Ernst: In your testimony, you describe how you bought your business from an international owner, and then used the sba's 504 loan program to both purchase your business's building and then expand your operation in iowa. Can you describe the investments that the 504 program has enabled you to make, and how the program helps small manufacturers secure the capital they need to expand operations, and maintain a steady pace of modernization?
▶ 0:50:32Mr. Swanson: Thank you, senator. In our case, the structure of the 504 program was essential for us as a relatively new ownership group to afford the purchase of the building, and what that enabled us to do was secure the future of our business in that location within a purpose built structure that met our needs very well.
▶ 0:51:04Mr. Swanson: The expansion following behind mount, again, without -- if the 504 program was a very attractive way that we could do that while still maintaining enough working capital and continue to hire the staff we were building back as I indicated in my comments, and additionally, we were in need of bringing in more production equipment.
▶ 0:51:29Mr. Swanson: Again, by having the capacity to continue to make those incremental investments over the growth of our business, that is the end result of how we use that program and how it benefits us.
▶ 0:51:42Chair Ernst: Wonderful. I appreciate that. And then modernization, continual modernization. I really appreciate that.
▶ 0:51:50Mr. Swanson: Constantly. And we have made more investments this year in some new capabilities, laser welder, plasma table, all things we didn't have, the internal capacity to do before. It all helps drive more of our capabilities internally.
▶ 0:52:11Chair Ernst: Fantastic. Thank you. Ms. wojtowicz, over the last five years, we have seen demand for larger loans within this 504 program. They have steadily increased. In the fiscal year 2021, only 4% of loans reached the program maximum, compared to only nine -- over 9% in fiscal year 2025.
▶ 0:52:36Chair Ernst: Over that same period, the share of these large dollar projects for manufacturers has grown at an even faster rate. Dearly tripling. -- nearly tripling. My finance act in conjunction with senator coons work, and thank you for partnering, really appreciate that, would double the loan limits for small manufacturers. If you could explain for us, what are the benefits of expanding the 504 loan program's limits first fall manufacturers?
▶ 0:53:09Chair Ernst: And how can we do that while also mitigating taxpayer risk?
▶ 0:53:13Ms. Wojtowicz: Thank you, senator ernst and thank you for introducing that bill. We think it's going to be extremely impactful to manufacturers. Indiana is a very high level of manufacturing state. The 5% of our 504 loans we have made have been to the manufacturing sector. Clearly important to our state and to the employees that work at those companies. If you think about the cost of manufacturing, much of this equipment is multimillion dollar pieces of equipment.
▶ 0:53:43Ms. Wojtowicz: And for a company to expand like Mr. swanson's has expanded, and having to continue to bring current equipment in that will increase efficiencies and keep those companies competitive, is extremely important. Not only do we use the higher loan limits so they can build larger buildings and employ more people, but certainly also to purchase and put into production the very large pieces of equipment that are necessary for those companies to remain competitive, and to continue to grow.
▶ 0:54:14Ms. Wojtowicz: It's extremely important to see those loan limits increased.
▶ 0:54:17Chair Ernst: We appreciate the feedback very much. Very briefly, Ms. kennedy, I have always prioritized ensuring the sba programs provide that meaningful support to rural small business owners who often face substantial challenges in getting adequate access to capital. We hear about all the time. Could you briefly walk us through any efforts you have made to support rural small business owners?
▶ 0:54:41Ms. Kennedy: Thank you so much, chair ernst. We have actually made a number of loans to rural businesses. In fact, about $70 million and 504 lending to rural businesses. As well as loans to businesses for microloans and community advantage loans. 2.3 million residents in california are rural or 5.8% of the population.
▶ 0:55:10Ms. Kennedy: It's a very important part of the business that we do. Thank you for the question.
▶ 0:55:14Chair Ernst: Really appreciate that. Now I recognize ranking member markey for five minutes.
▶ 0:55:20Sen. Markey: Thank you very much. As I said in the opening, senator coons and senator ernst manufacturing act is one step forward. But as I also pointed out, president trump's policies are four steps backwards for manufacturers at the same time. Which is still hurting our economy.
▶ 0:55:43Sen. Markey: As I mentioned in my opening, trump's sba new severe citizenship there for cajun requirements are cutting off small business access to capital. These requirements specifically bar small businesses with any amount of foreign investments or ownership through individuals, lawfully in the united states of america.
▶ 0:56:07Sen. Markey: Noting da -- including daca recipients. Now to qualify for a sba loan, they must be 100% owned by U.S. citizens. Nationals or green card holders, not even 1% can be owned by someone with a different legal immigration status. Let's just say your father from brazil. 1%. You are out. Mr. raccio and Ms.
▶ 0:56:31Sen. Markey: Kennedy, I'm concerned about the chilling effects this will have on entrepreneurs looking for an sba loan. Can you expand on how the U.S. small businesses and local communities are hurt by these new requirements? Mr. raccio.
▶ 0:56:47Mr. Raccio: Thank you for that question, senator markey. It has been challenging for many small businesses. As I alluded to in my testimony, we did have the brazilian family that was unable to obtain a loan. We also had a more recent example in your home state of massachusetts with an 80% american citizen, 10% two year green card holder, as well as someone on a work visa owning the other 10%.
▶ 0:57:19Mr. Raccio: That project was not able to move forward based on ownership. That was difficult. While we won't be able to completely quantify who is not applying, we are confident that we are seeing businesses not applying due to the lack of 100% ownership of a U.S. citizen or lawful permanent resident. We would urge the committee to return to the previous rules that allowed 51% ownership.
▶ 0:57:47Chair Ernst: 50% of all companies in massachusetts are started by immigrants. Titus historic across the whole country. Ms. kennedy.
▶ 0:57:51Ms. Kennedy: Senator markey, we too, that matter regarding 100% citizenship, especially in the state of california, has been significant. One of the examples that I included in my written testimony was a returning sba 504 customer, that we had served eight local winery, really a beautiful business in the community.
▶ 0:58:19Ms. Kennedy: And they have a partner that is a 30% owner that is a canadian native, a canadian citizen. When that first loan was done, we were able to serve that business because it is majority owned and controlled by a U.S. citizen. When they came back to us, we were not able to serve that business, because of the new citizenship rule.
▶ 0:58:46Ms. Kennedy: And I agree with my colleague that if we rolled back to the requirements in the sop, we would be able to serve locally owned, majority-owned and controlled U.S. citizens who are creating jobs here in america.
▶ 0:59:02Chair Ernst: Thank you caret small businesses are required to use the loans to accomplish certain goals, including to reduce energy consumption, increase the use of sustainable designs that reduce greenhouse gas emissions, and use renewable energy. These energy goals were passed on a bipartisan basis, signed into law by president bush in 2007. I know because I stood over his shoulder when he signed it because I was the democratic author of the bill. Mr.
▶ 0:59:31Chair Ernst: Raccio, can you explain how loans used to meet the clean energy goals help small businesses in their communities?
▶ 0:59:41Mr. Raccio: Absolutely. Thank you for that question. We have had a lot good success stories. One, as I mentioned earlier, was tens borough sport, which was able to do multiple projects utilizing renewable energy. As a matter of fact, it had such success with the solar project they have done, they were able to feed electricity back to the grid.
▶ 1:00:03Mr. Raccio: It has been a very nice project where they are able to provide other small businesses energy at peak times, all while creating jobs and growing their own business by being able to sell some of this energy back. I also see many hotels doing this as well. They. Have large flat roof tops. They are traditionally capped at the traditional 504 loan amount.
▶ 1:00:24Mr. Raccio: By utilizing a renewable energy project, they are able to put solar panels on the roof, save themselves energy usage and move forward with the financing that they are looking for. Thank you.
▶ 1:00:35Chair Ernst: Thank you.
▶ 1:00:36Chair Ernst: Thank you ranking member markey. Now I recognize senator john houston for five minutes.
▶ 1:00:44Sen. King: Stood -- >> I want to reflect a little bit on the conversations I have had with ohio businesses over the past few months. Because they were grateful that they have a more stable environment operated in this country since the passage of president trump's budget reconciliation bill which passed here and was signed into law on july 4, which included expanded
▶ 1:01:14Sen. King: Pass-through income and deductions. 100% immediate expensing of business investments. And r&d expense and deduction for domestic r&d cost, so we can invest through the private sector in advancing innovation. Childcare credits and other employee benefits. I know that in talking with them, what does this mean to you ? It means more cash flow it means more liquidity. Lower compliance cost.
▶ 1:01:44Sen. King: Greater incentives, and incentives to hire people. Because they can provide additional benefits to their employees, and it encourages them to invest so they can compete with people around the globe. I know that's hard for small businesses. But we have done a great deal and we can do more to create a better business environment in this country. I was reflecting on Ms.
▶ 1:02:16Sen. King: Wojtowicz's testimony here. You said something that struck me. Indiana and ohio, we have a lot of manufacturing in our respective states. I know chair ernst touched on this as well. We want to do made in america, we say we want more manufacturing jobs in this country. We know that all states are not made the same. Some have a high amount of manufacturing and their respective states as part of their economy.
▶ 1:02:42Sen. King: And you said one of your recommendations, I want to give you a chance to explain why you believe this is so important, because I agree with you. That congress should expand access to the 504 program to enable manufacturers to retain more capital by reducing the equity injection from 10% to 5%.
▶ 1:03:04Sen. King: It's almost a penalty to be a manufacturer, even though those sites are coveted in states like ours, where people want to have access to those facilities. Just talk about how you think this will help boost manufacturing in your state and the country.
▶ 1:03:24Ms. Wojtowicz: Certainly. Thank you for the question. Manufacturing is critically important to our country in every state. In those states like ours that are heavy manufacturing focused states, it is even more important. The manufacturing sector, again, buildings and equipment are extremely expensive. Often, those companies have working capital needs that are extreme as well.
▶ 1:03:52Ms. Wojtowicz: By limiting their down payment from 10% to 5%, they will be able, certainly, to have more working capital. Let me take one other step on there. Many of these manufacturing sites have rail access, which is critical to them -- for them to be able to deliver goods. If a rail site is on that property, it is currently classified as a special property. And they have to put another 5% down as equity.
▶ 1:04:21Ms. Wojtowicz: Instead of in a typical manufacturing project being 50% bank, 40% cdc, 10% equity, if there is a railroad spur on that property, the borrower has to put down 15%. And only get 35% of the very attractive sba 50 for financing with a long-term fixed rate. So we are looking for all companies that are special-purpose, and there are many, to not have to have that 5% penalty.
▶ 1:04:50Ms. Wojtowicz: And specifically for manufacturers to be able to reduce their equity contribution from 10% to 5%.
▶ 1:04:57Sen. Husted: If you talk to a manufacturer, they need to compete, because we have higher wage rates in our country. To compete, they have to have the capital to buy the new machinery and equipment to up their productivity gains so they can compete. This is an important part of them not having the capital to do that.
▶ 1:05:12Ms. Wojtowicz: Extremely important. They not only have to invest in that capital and utilize having a 10% down payment, pull some of the working --
▶ 1:05:20Sen. Husted: I see Mr. swanson smiling and shaking his head. I think he wants to see -- wants to say something here.
▶ 1:05:27Mr. Swanson: I was nodding in agreement. There's only one pool of capital we have available as a company. We have to elect where to deploy that, whether it is on equipment purchases and modernization or hiring more staff. My colleague's point is exactly on target with that.
▶ 1:05:43Sen. Husted: Great, thank you.
▶ 1:05:46Chair Ernst: Thank you. Senator coons.
▶ 1:05:47Sen. Coons: Thank you, senator ernst and thank you to our four great witnesses. Notter defines manufacturing capital needs riveting but I do. I'm excited about this hearing. I think this is interesting. Well find manufacturing exciting. As some of you know, I spent a decade in manufacturing before I ran for office.
▶ 1:06:10Sen. Coons: And then as county executive, now a senator, worked closely with the cdcs in delaware and those who help with capital lending, and compete globally as it small and medium-sized a menu -- american manufacturers. Mr. swanson and Mr. raccio, wojtowicz Ms. wojtowicz, and Ms. kennedy, thank you for what you do. As cdc leaders, to help deploy the resources of the 504 program.
▶ 1:06:36Sen. Coons: Thanks for helping us understand how the 504 program helps bridge the gap in cdc's help can originate and put together. I am proud to work with chair ernst on the made in america manufacturing finance act recently approved by this committee. To increase the loan size available to small manufacturers. Mr. swanson, in europe appeared testimony, you discussed the challenge of competing in foreign markets. You spoke earlier about computing in brazil.
▶ 1:07:07Sen. Coons: How does the guaranteed lending offered by the 504 program allows small manufacturers to successfully compete globally?
▶ 1:07:14Mr. Swanson: Thank you, senator coons. That starting point I would refer to would-be, as was discussed by allowing us to continue to invest in the kinds of capital equipment that can be extremely useful for us to offset the challenges of labor supply, and allowing us to --
▶ 1:07:44Mr. Swanson: The specific requirements for high-tech equipment that we are manufacturing. We leverage those advantages in terms of the international markets that we pursue.
▶ 1:07:55Sen. Coons: I remember meeting with miller metal in bridge, delaware my first year as a senator, seeing how both score, which is an organization founded in wilmington, delaware, avenue business executives who volunteer, in the manufacturing extension partnership program helps the small family-owned metal pressing and bending company figure out what capital investments they needed to make to get a cutting edge bending and welding and punching machine.
▶ 1:08:25Sen. Coons: And then they successfully competed against a chinese manufacturer for a small part that went into thousands of assembled hi-fi system. It was amazing to be a company from bridgeville could compete directly with the chinese manufacturer and win. Mr. raccio, four has helped lots of companies compete. I was concerned to hear that their funding had been held up for months, and they were beginning to lay off people federally.
▶ 1:08:56Sen. Coons: They have 10,000 volunteer mentors. It is the most cost-effective federal program known. I was relieved to find out today that those withheld funds are now being released. You mentioned score and other resource partners in your written testimony. How do they help reinforce your work delivering capital to manufacturers?
▶ 1:09:14Mr. Raccio: Thank you, senator coons, for that question. They help on almost a weekly basis. Score has been a monumental partner in helping our small businesses, whether it is finding access to certain sba programs, helping them with business plans. It's often critical for our small business partners, whether they are looking to expand or simply start. They are not sure how to go about it.
▶ 1:09:39Mr. Raccio: Pacifically in new england, we have a lot of retired executives that have an extreme amount of industry knowledge. So it has been a really good partnership with score. They will also pair up with sbdc as well. They are out at events, they are a great product, great set of people. I'm glad the funding was released. But they are out there and working with our businesses every day.
▶ 1:10:05Sen. Coons: Last question for anyone on the panel. There have been proposals to cut the sba workforce by as much as 40%. At least in delaware, I have seen how having the sba office and staff with connections and experience helps facilitate access particularly to manufacturers that tend to be overstretched, and only know about these programs because there is staff available to help.
▶ 1:10:32Sen. Coons: What sort of impact do you think we would see if they carried through with dramatic cuts to the total sba staff? Anybody. Ms. kennedy.
▶ 1:10:43Ms. Kennedy: Senator coons, thank you for the question. You know, the sba staff is so resilient. We have just found them to be so committed to getting the work done, and partnering with other economic development organizations like cdcs, that we would all have to jump in because small businesses are that important to our local economies, and to creating jobs. Certainly cuts always hurt.
▶ 1:11:13Ms. Kennedy: But the rally for small businesses is absolutely there in our local communities. We want to make sure that those employees are there for serving our community, but as well as having those partners like score. That was really good news to hear. Thank you for delivering that.
▶ 1:11:31Sen. Coons: Thank you p thank you, madam chair, with a chance to work with you to provide more capital to america's small business manufacturers.
▶ 1:11:40Chair Ernst: So glad to partner with you. Senator shaheen.
▶ 1:11:41Sen. Shaheen: Thank you, madam chair and to all of our witnesses today. We are delighted to have you here and to have your experience to share with us. Following up on senator coons question about staffing shortages, one of the things I've heard from my constituents in new hampshire is that 504 approvals are taking longer due to staffing cuts.
▶ 1:12:07Sen. Shaheen: And the loss of some of the experienced staff that has been working on these kind of loans for a long time. Can any of you speak to what difference it makes when it takes longer to get a 504 loan approved? What does that mean for the small businesses who are affected?
▶ 1:12:28Mr. Raccio: Thank you for that question. It impacts our businesses and their ability to close on loans, whether it is real estate that needs to be purchased. For example, we had a recent deal where there was a 1031 real estate exchange, a federally timed product where we have to close. And we are waiting and the business is very nervous if they will get the approval. That is just one example of when there are time delays, it's very sensitive to the businesses.
▶ 1:13:00Mr. Raccio: And it often leaves them feeling anxious, noticeably so. Anything we can do to increase turnaround time, and have that accountability and predictability for the small businesses that they know whether it is five days or 10 days, that would be immeasurable to the small business to know when they start their loan application with us in a certain amount of time that they will have a decision. Thank you.
▶ 1:13:24Sen. Shaheen: Does anybody want to add to that?
▶ 1:13:29Ms. Kennedy: It's a great question and I would say to you that this sba staff is so resilient in terms of trying to make sure that they serve small businesses. They are committed to that. I agree with my colleague. Time matters. And time kills deals. It's really important to have that level of certainty when they submit a loan that we can get that approved in a timely manner.
▶ 1:13:52Sen. Shaheen: Thank you. I appreciate that. And I would agree with you. Sba field staff in new hampshire is tremendously resilient and do a great job. In my experience is that all of the other sba folks that we have worked with are in that category. I know that senators young and klobuchar have worked together on some improvements to the 504 program.
▶ 1:14:18Sen. Shaheen: One change in particular that they proposed that I think is really important is shifting the occupancy rates to make it easier to use a 504 loan for mixed-use building. New hampshire like so many states is an affordable housing -- is in an affordable housing crisis. There are a lot of new hampshire towns that have main street buildings that are low long -- that are no longer occupied that could benefit from investment to allow them to be used as housing and commercial space. I know, Mr.
▶ 1:14:47Sen. Shaheen: Raccio, or at least I understood that you may have looked into this issue. C1 do you think that changing those occupancy requirements will be helpful as we are looking at how we address both small business issues but also some of the housing challenges that we have? >>we would love to be able to change the occupancy requirements.
▶ 1:15:25Sen. Shaheen: That would allow more borrowers to get access to capital funds to purchase real estate. These buildings may have a couple of floors. They might have some investment space to it. That is our work. We have a lot of buildings that are identical.
▶ 1:15:59Sen. Shaheen: It would be really nice to be able to have that. To be able to have more access to capital.
▶ 1:16:06Sen. Shaheen: What did you say about new buildings? >> Mr. raccio: the same.
▶ 1:16:15Sen. Shaheen: Do others want to address that? >> I would add a little bit of clarification. This requires that even if it is at 51%, over sometimes a rock -- occupy of that 80%.
▶ 1:16:35Sen. Shaheen: That is a really good point. Thank you very much for that. Thank you all very much for your testimony. >> thank you. I love to see everyone smiling and agreeing.
▶ 1:17:05Sen. Shaheen: Right now we have almost 100 approved. It's something we want to keep going. Thank you for being here. I want to build on that. It is beneficial for local and national economies.
▶ 1:17:37Sen. Shaheen: Nevada is a leader in clean energy with the most solar jobs per capita. We have the sun. We farm what we can we are still growing. Last year we had our greatest expansion of solar in a decade. That will create more opportunity.
▶ 1:18:08Sen. Shaheen: This will have a devastating impact on small businesses. We have tons of small businesses that make all the pieces and parts that go into building solar panels. It is really important. Businesses in nevada, they are uncertain if they will close. If they will stay or go. It is a very stressful time for us.
▶ 1:18:37Sen. Shaheen: You mentioned in your testimony a successful clean project in reno. Can you speak to the importance of direct investment in emerging industries like clean energy and the ways we can make it easier, especially for those that have alternate energy sources.
▶ 1:19:04Ms. Kennedy: Thank you so much. We certainly agree with that. We were able to assist a business I have gotten multiple loans and moved into reno to do another memory care facility that included some senior housing as well.
▶ 1:19:30Ms. Kennedy: Being able to get access to that end open up another location with a very significant project. Being able to eliminate that cap which was already in place in the previous administration, that will really make a difference for clean energy. Energy costs are increasing in states like california with all of the fires.
▶ 1:20:03Ms. Kennedy: Being able to create clean energy is such a victory for small businesses already dealing with so many additional costs.
▶ 1:20:14Sen. Rosen: I agree. I want to move on. Our nation is facing a severe shortage of affordable housing. It is forcing families into housing and security and creating challenges. We must support small businesses.
▶ 1:21:03Sen. Rosen: Affordable housing really makes it to heinz. -- a difference. Can you give us a story on how you are working with small businesses in the housing space?
▶ 1:21:16Mr. Raccio: Thank you for that question. We are not able to directly provide assistance for housing. But we do provide financing for some of those businesses to purchase their own real estate and expand. I recently had a project up in cape cod, massachusetts. We were able to help the contractor out.
▶ 1:21:53Mr. Raccio: While we might not be able to directly provide funds, we are certainly involved with the industry it on a daily basis.
▶ 1:22:01Sen. Rosen: Thank you all for being here.
▶ 1:22:05Sen. Ernst: Thank you. Now I will recognize senator hickenlooper for five minutes. >> this is a treat. Watching you on tv. I really appreciate it. There are not that many of us left. I am an entrepreneur in my own right.
▶ 1:22:45Sen. Ernst: I was out of work for a couple of years. I ended up opening a restaurant that brewed its own beer. Thanks turned me down. We finally got open.
▶ 1:23:15Sen. Ernst: We had to put up thousands of dollars of collateral. We got going on things took off. All of a sudden everyone copied us. We had all of these competitors. We had to expand. We still did not have any money.
▶ 1:23:42Sen. Ernst: Our business was doing great with quick cash flowing like crazy. The five of four program is what we used. To use that cash flow. We put millions of dollars into it. It worked. No one else would have talked to us or giving us that chance.
▶ 1:24:09Sen. Ernst: If you look at so much of the good ideas and innovations that come out of this country, it is people who were payroll? How can you get a better margin on those customers? That creates the devotion to try to solve a problem. That leads to solutions that a lot of other people benefit from.
▶ 1:24:47Sen. Ernst: The only reason I was a small business person is because I did not want to have a boss. I appreciate all of you. What you have done. We have seen a bunch of that.
▶ 1:25:25Sen. Ernst: Sometimes it is harder to get that to be monetized. Now more than ever we are seeing then use investments to navigate increasing costs. The new energy sources that will lower energy costs. The sba put a caps on 504 financing that businesses could receive her energy projects.
▶ 1:25:53Sen. Ernst: Just as we were at that point when we had a bunch of projects lined up and ready to come through. Small businesses are so neurotic and driven that they would've come up with the innovations. How have small businesses use 5-0 for to invest in clean energy and what does the cap do? Thank you so much.
▶ 1:26:22Sen. Ernst: This will hinder small businesses from continuing to use the energy efficiency public policy goal by no longer being able to do multiple projects. We have a number of businesses in california that could benefit from removal of these caps so they can continue to grow.
▶ 1:26:54Sen. Ernst: It is really critical in california as energy costs continue to go up because of the fires. We need to have access to this particular public policy goal without those limitations.
▶ 1:27:06Sen. Hickenlooper: Great. Thank you. Can I steal another minute? I talked too long with my story. I apologize. How can lenders combine different types of financing to support businesses?
▶ 1:27:32Sen. Hickenlooper: Is there something we should be doing in congress or is there something we can put our shoulder to the wheel and try to get the sba to do in terms of being innovative? I ended up with four different loans to get that project done. The 504 load made all of the difference.
▶ 1:28:00Mr. Raccio: Thank you. We have an amazing toolbox. To help out with working capital. A lot of tools of the everyday business owner will need is what we have. Also having some accountability when it comes to time frames. It really helps to boost where we go with these products. We have a very good toolset.
▶ 1:28:33Mr. Raccio: Just listening to your story, at the end of the day when we are able to do these loans, we really do make small business owners dreams come true. It is not every day that we can say that. But we have clients who are excited for the possibility of purchasing real estate.
▶ 1:28:57Sen. Hickenlooper: I came close to doing one in indianapolis and close to doing one in davenport.
▶ 1:29:06Sen. Ernst: Thank you.
▶ 1:29:07Sen. Ernst: If there are no further questions I want to thank our witnesses for being here with us today. I ask unanimous consent that today's record remain hearing to extend their remarks and submit additional information into the record. Without objection, so ordered. With that, we stand adjourned. Thank you all very much.