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SMALL BUSINESS ADMINISTRATION: MANAGEMENT 

AND OUTLOOK 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

SEPTEMBER 10, 2014 

Small Business Committee Document Number 113–081 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMEYER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESS 

Hon. Maria Contreras-Sweet, Administrator, United States Small Business 

Administration, Washington, DC ........................................................................ 3 

APPENDIX 

Prepared Statement: 

Hon. Maria Contreras-Sweet, Administrator, United States Small Business Administration, Washington, DC ........................................................ 22 

Questions for the Record: 

Questions from Hon. Sam Graves and Responses from Hon. Maria 

Contreras-Sweet ............................................................................................ 25 

Question from Hon. Steve Chabot and Responses from Hon. Maria 

Contreras-Sweet ............................................................................................ 31 

Question from Hon. Mick Mulvaney and Response from Hon. Maria 

Contreras-Sweet ............................................................................................ 31 

Additional Material for the Record: 

None. 

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SBREP-219 with DISTILLER

(1) 

SMALL BUSINESS ADMINISTRATION: 

MANAGEMENT AND OUTLOOK 

WEDNESDAY, SEPTEMBER 10, 2014 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 

2360, Rayburn House Office Building. Hon. Sam Graves [chairman 

of the Committee] presiding. 

Present: Representatives Graves, Chabot, Leutkemeyer, 

Schweikert, Collins, Vela ́zquez, Schrader, Chu, Hahn, Meng, 

Schneider, and McLane Kuster. 

Chairman GRAVES. We will call the hearing to order. And I 

would like to welcome everybody for being here, or welcome everybody to the hearing room. 

Today we are going to welcome for the first time to the Committee the Honorable Maria Contrares-Sweet, the 24th administrator of the Small Business Administration. Since being confirmed 

as administrator and a member of President Obama’s cabinet of 

this year, Administrator Contrares-Sweet has been responsible for 

leading the SBA in its wide array of programs. In addition to overseeing the Agency, including its loan portfolio worth more than 

$100 billion, the administrator is responsible for positioning the 

SBA to succeed in the years ahead. And with this hearing, we plan 

to both examine the current management of the Agency and develop better insight as to how the SBA has poised itself to tackle 

future challenges in a dynamic, economic climate. 

We all know that small businesses are the engines of our economy and responsible for the creation of two-thirds of all new jobs, 

and access to capital is critical to these job creators. In the last fiscal year, the SBA supported more than $29 billion in lending to 

small businesses, and this was led by the 7(a) Loan Program, 

which guaranteed over $17 billion in lending and is on pace to do 

so again this year. 

The SBIC program also had another record year and the 7(a) and 

504 loan programs required less taxpayer dollars to operate last 

year than in any since the recession. While there have been recent 

successes, fundamental concerns associated with the SBA’s management remain. As the Committee has expressed before, the 

Agency continues to create policy without the benefit of notice and 

comment rulemaking, thereby ignoring valuable input of those affected. 

For example, in June, an announcement of a new credit scoring 

model for loans of under $350,000 was made by an internal agency 

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2 

notice. Additionally, the Agency has a history of pursuing initiatives it creates on its own while ignoring congressional mandated 

activities. Contracting reforms this Committee debated and approved and which were signed into law more than two years ago 

have not been fully implemented, while resources instead have 

been devoted to potentially duplicative, unauthorized entrepreneurial development programs dreamed up by the Agency with little public input. 

To ensure the Agency is accountable and operating in the most 

efficient manner while reducing risk to the taxpayers, it is critical 

moving forward that the SBA works with Congress, complies with 

the law, and engages the public more effectively. 

We are very fortunate again to have the administrator here with 

us today, and we look forward to hearing her perspective and working with her to improve SBA and better serve small businesses. 

And I now recognize Ranking Member Vela ́zquez for her opening 

statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

This hearing is timely. While we have not yet seen the pace of 

economic growth all of us would like, America’s entrepreneurs are 

creating jobs, growing, undoubtedly leading us back to prosperity. 

In August, small firms with fewer than 500 employees led job 

growth, adding 153,000 positions to the payrolls. At the same time, 

early August numbers for the broader economy were disappointing. 

Clearly, the outlook for both our recovery and the small business 

sector remains mixed. Small businesses do appear poised to ramp 

up investment in their operations. A recent survey found 51 percent of companies with less than $20 million in revenue, plan to 

increase capital spending during the next year, an investment that 

will hopefully fuel further growth. 

Despite positive trends, obstacles remain. Access to capital is a 

perennial challenge for entrepreneurs. That remains the case 

today. Even now, lending activity has not returned to pre-recession 

levels. Commercial loans of less than $1 million, loans that primarily go to smaller companies, remain down by about 20 percent, 

compared with the year leading up to the financial crisis. At the 

same time that capital is tied, two-thirds of small companies report 

rising expenses in broadening their businesses. Fully a quarter of 

firms say rising costs are the biggest challenge, making clear the 

need to expand entrepreneurs’ financing options. 

Likewise, small businesses continue seeking demand for their 

goods and services. This committee has repeatedly examined how 

small firms and other disadvantaged businesses can benefit with 

the federal government as a customer. While the federal government may hit its 23 percent small business contracting goal this 

year, more can always be done. 

In all these areas, the SBA performs a vital mission, and I just 

want to take this opportunity to welcome Ms. Contreras-Sweet to 

the SBA. I am looking forward to working with you. SBA credit 

programs get capital into the hands of small firms by guaranteeing 

loans that banks might otherwise be unwilling to make. Last year, 

the agency supported $29 billion in loans to small firms. As commercial credit remains tight for small companies, it is critical the 

agency continue helping entrepreneurs access capital. 

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3 

Likewise, the agency has a crucial role in ensuring federal agencies meet their small business contracting goals. While hitting the 

2013 government goal constituted progress, it comes after small 

businesses received nothing for many years. The entire federal government can and must do better. For aspiring entrepreneurs and 

early-stage businesses, the SBA is equally important. Studies have 

consistently shown that federal investment in these programs net 

a positive return for the taxpayers. 

I look forward to hearing how the agency will manage these programs in the future. The small business administration can provide 

an important boost to small companies, and when small businesses 

succeed, the broader economy does well. In that regard, I look forward to hearing the administrator’s views on how the agency is 

currently functioning, what improvements can be made, and how 

she plans to strengthen SBA services to benefit America’s entrepreneurs. 

Mr. Chairman, I thank you for this time, and I yield back. 

Chairman GRAVES. Okay. Testifying before us today is the Honorable Maria Contrares-Sweet, who is the administrator, as we 

have mentioned, of the Small Business Administration. The administrator oversees the Agency’s loan portfolio, as well as small business counseling and contracting programs. Administrator 

Contreras-Sweet is a successful entrepreneur, business executive, 

and former state cabinet official, and prior to taking over the helm 

of the SBA, she founded the first Latino-formed commercial bank 

in California in more than 35 years and focused on providing access to capital and counseling to small- and mid-size businesses in 

Los Angeles. She also started and ran a venture capital firm that 

invested in small businesses. 

Administrator, thank you for being here. I look forward to your 

testimony. 

STATEMENT OF MARIA CONTRERAS-SWEET, ADMINISTRATOR, 

UNITED STATES SMALL BUSINESS ADMINISTRATION 

Ms. CONTRERAS-SWEET. Thank you so much, Chairman 

Graves, and to you, Ranking Member Vela ́zquez. I am delighted to 

be with you and with all of the members of this wonderful Committee. Thank you for the opportunity to address you today. 

Since being confirmed, I have taken time to sit with many of you, 

and I have come to know that you not only share my passion to 

promote entrepreneurship, but have been actively engaged in supporting our nation’s small businesses. I am grateful to you. 

In my engagement with the chairman and ranking member, I 

have seen firsthand the bipartisan commitment of this Committee, 

working together to help small businesses. At the SBA, our team 

remains focused on our core mission of facilitating access to capital, 

counseling, contracts, and disaster assistance. When meeting with 

our lenders, clients and borrowers, I understand their concerns because I have been in their shoes as an entrepreneur, five years as 

California’s chief bank regulator, and in starting a community 

bank. This guides my belief that SBA can help more businesses 

create jobs. 

I have also learned the significant work that happens in this 

Committee and the importance of working with you to make our 

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4 

programs better and the Agency run more effectively. SBA’s capital 

is infusing dollars into local markets and improving our American 

economy. Small businesses inject capital into the economy more 

quickly as they cover payroll, buy equipment, and acquire local real 

estate. This is good, so we can stamp more often ‘‘invented, grown, 

and made in the USA.’’ 

In the 21st century, the SBA must be as innovative as the businesses we serve. I want SBA to mean ‘‘Smart, Bold, and Accessible.’’ Implementing smart systems so our agency keeps pace with 

the technological advances that change how Americans conduct 

their business. Championing bold initiatives to open new business 

channels for entrepreneurs within the federal government, corporate supply chains, and international commerce. And making our 

services more accessible to small business owners, regardless of 

their gender, race, age, or neighborhood. 

From my conversations with Chairman Graves, and many of you, 

we see that the prevailing challenge SBA faces is that our loan documentation is too complex and labor intensive, forcing banks to 

hire specialized staff, contract it out, or worse, walk away from 

loans. We cannot afford to lose these partners and turn job creators 

away. To combat this, we have launched a predictive business credit scoring model the SBA has been developing for more than a decade, combining an entrepreneur’s personal and business credit 

scores. This new scoring model is now available to all of our lending partners for loans of $350,000 or less, making it easier and less 

time-consuming for banks to do business with us and for entrepreneurs to do business with them. 

Strong stewardship of our flagship 7(a) program has allowed us 

to keep fees at zero on loans less than $150,000, and we continue 

to operate it at zero subsidy. The 504 program is moving closer to 

zero subsidy. Next year, we will roll out SBA-1, an interactive, 

user-friendly platform. It will automate the uploading of documents 

and generation of forms, and allow for electronic signatures. On 

each 7(a) loan, the SBA will say banks’ hours of processing time 

and money. The combination of predictive credit scoring and SBA1 will incent more banks to partner with us to promote underserved lending, generating more loans and igniting more economic 

activity. 

Being bold means opening new markets, both here and abroad. 

Over the next decade, new markets around the world are going to 

open up, but only 1 percent of small businesses are selling to them. 

We are focused on ensuring small businesses have the financing 

they need to engage internationally. 

I am pleased to announce that for the first time in eight years 

the federal government met the 23 percent goal of federal contracting to small businesses in FY13. This was an important 

achievement, but lamentably, we fell short of our women-owned 

contracting goal. We must do more to meet it. 

The face of entrepreneurship is changing in America. Being an 

accessible SBA is key. More of those faces today belong to women, 

to Latinos, to African-Americans, Asian-Americans, Native Americans, our veterans, and our seniors. To this end, in addition to promoting small dollar loans, we are focused on building referral netSBREP-219 with DISTILLER

5 

works with micro lenders so new businesses can get startup capital. 

At the SBA, our team is working to find creative ways to put 

micro capital into the hands of emerging entrepreneurs. While this 

has been a priority from Ms. Vela ́zquez, we have all seen too many 

entrepreneurs with great ideas and products default because of 

poor financial planning. We look forward to working with her, all 

of you, and our national network of partners to increase technical 

assistance to small businesses. Our guarantees allow lenders to 

make loans they otherwise would not. 

The SBA fills market gaps. Every dollar we inject into the economy is capital that would have potentially stayed on the sidelines. 

I thank you for all your bipartisan commitment to small businesses. Mr. Chairman, I am delighted to take your questions. 

Chairman GRAVES. All right. We will start with Mr. Chabot. 

Mr. CHABOT. Thank you very much, Mr. Chairman. We are 

honored to have you here this afternoon, Madam Administrator. 

And thank you for taking the time to speak with me over the 

phone last week. I know that you had an opportunity to learn 

about The Brandery in Cincinnati, which is one of the startup accelerators. It has been quite successful around the country, and the 

accelerator fund. 

Looking at the most recent metrix for the SBA’s Capital Access 

Programs, it is clear that the SBIC program is an important one, 

and I think the SBIC program fills a critical gap in the market 

caused by the financial crisis, and to some extent, by the burdens 

on lenders under Dodd-Frank. But many successful SBICs have hit 

the family of funds limit, and there are many more funds that will 

hit it if they raise another fund. In other words, if they try to support more small businesses. So we should encourage investments 

in small businesses, not limit it. 

The administration has previously been supportive of raising this 

limit. Does the administration still support raising the family of 

funds limit, and will you work with us to help pass an increase? 

Ms. CONTRERAS-SWEET. Thank you, Mr. Chabot, for that 

question. 

I think the SBA sees a very interesting tool. Just thinking and 

harkening back to my banking days, I can share with you that 

sometimes we do not always have enough to collateralize a loan, 

and so I find that the notion of providing mezzanine capital, patient capital, is really key, and I am delighted that this program 

is blooming and more and more are hearing about the program. 

I just received another application for a SBIC yesterday, in fact, 

so I am pleased to tell you that out of this office, this Office of Innovation and Investment, we were able to shape the growth accelerators to which you just referenced. And I am pleased to tell you 

that through that program we are incubating the incubators, because it is important to connect with those who wanted just some 

seed capital to get started. I call it sort of angel financing without 

taking an equity position. So overall, I find that this program is 

very complemented to the other suite of programs that we have at 

the SBA, and I am supportive of it. I have been watching that ceiling, and I can share with you that at least so far I have not seen 

a challenge with it, but others have come to me, and I would be 

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delighted to come back and work with you to support the ceiling 

of that opportunity. 

Mr. CHABOT. Yes. We would like to follow up with you and 

work with you on the family of funds issue. Thank you. 

Let me ask you this. All of our financial institutions play a role 

in small business capital formation, and credit unions are no exception. I happened to speak before the credit union folks who were 

in town this week, this morning for a while. In fact, they experienced a 12 percent growth in small business loans from last year. 

Is the SBA trying to collaborate more with credit unions, and if so, 

could you elaborate on any of those efforts? 

Ms. CONTRERAS-SWEET. Thank you again. I have to tell you 

that I think credit union are quite special. I think they can play 

a very important role considering that they complement the forprofit community of the private lenders which I was a part of, but 

I find that their model is quite interesting. And so as soon as I took 

office, I reached out to the chairman of the regulatory body, Debbie 

Matts, to engage and to discuss what role—what is the proper role 

of our credit unions. I was delighted to see their interest in wanting to engage, and I am pleased to share with you that just recently we are now in the throes of actually penning an agreement 

where we can work more collaboratively and collegially. 

I was just in San Diego meeting with our AARP organization, 

which is also a marvelous organization. And so the three of us are 

looking to form a troika, if you will. I think credit unions can play 

a special role, particularly with respect to micro lending, and that 

is the target that we are looking at. 

Mr. CHABOT. Thank you. 

Ms. CONTRERAS-SWEET. And it would not affect their business cap, and so I think that it works and it would be complementary to what they are doing already. Thank you. 

Mr. CHABOT. Thank you. 

I have got about a minute, so let me just ask you this. You had 

mentioned that you are interested in gauging internationally, 

meaning trade, I am sure. Do you know if the president is going 

to expend any political capital anytime in the near future to push 

some of his allies in the House on TPA, the Trade Promotion Authority, and therefore put us on the road to TPP in the Pacific area, 

or TTIP in Europe, because international trade is absolutely critical, the economy, and it is kind of a heavy lift, and we have not 

really seen much effort there by the administration at this point. 

Not you, but your boss. 

Ms. CONTRERAS-SWEET. Thank you. Thank you for that. 

I have to tell you that as we see that in the next 10 years we 

are going to see about a billion new consumers in the middle class 

join the ranks of the middle class, and so it is important that we 

keep a keen eye on the international opportunity. Right now, 95 

percent of the world’s consumers are outside of the U.S., and only 

1 percent of small businesses are partaking of that opportunity. So 

I think it is important for us to look at ways in which we help the 

small business adapt and grow into international strategies. 

So to that end, you know that we have the STEP program that 

we use. We have, of course, our USEAC centers where we provide 

services throughout the country. We work collegially with ConSBREP-219 with DISTILLER

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gress, with the Ex-Im Bank, with all the others, and the president 

has indicated that he supports TPP and asked us to get behind it 

as well. I cannot tell you particularly exactly his strategy, but I can 

tell you that he stands ready to do what he can to encourage small 

businesses to partake of the enormous international opportunity. 

Mr. CHABOT. Thank you very much. 

Chairman GRAVES. Ms. Vela ́zquez? 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. And welcome 

again, Ms. Contreras-Sweet. 

Ms. CONTRERAS-SWEET. Thank you. 

Ms. VELA ́ ZQUEZ. You mentioned, and I mentioned in my opening statement, that access to capital is still a challenge for a great 

number of entrepreneurs. And one of the sectors in our economy 

that is facing serious issues in accessing capital are women entrepreneurs. When the Small Business Jobs Act was passed in 2010, 

we were told that we needed larger loans to help spur the economy. 

However, lending volume to women-owned firms actually decreased 

in that time. More shockingly, larger loans seem to have disproportionately benefited male-led firms. The gap in average loan size 

reached almost 50 percent in 2011 and remains above 35 percent 

today. How can we tell women entrepreneurs that the SBA is there 

for them when such large discrepancies exist, and what do you intend to do about it? 

Ms. CONTRERAS-SWEET. Thank you for asking me a question 

that is very important to me personally, and I started a financial 

institution because I care deeply about making sure that all people 

have access to capital in a very consultative and respectful fashion. 

So, to that end, on day one, when I inquired about what the opportunities were, I have learned as a banker that there is no one 

silver bullet for any target market. We have to make sure that we 

have a continuum of capital available so that as we grow, that the 

SBA can continue to be there, bearing in mind that the SBA is not 

there to compete with the private capital markets; we are only 

there to fill the market gaps. 

And so in that regard, we have, I would say, a triple, quadruple 

prong strategy. First, it is the way we consult our women. We have 

Women Business Centers throughout the country that are helping 

them understand how to build a sold, strategic plan. You all know 

that you gave us an important tool then in terms of once they have 

a plan, they need to get work. You gave us an important tool, and 

that is you said to us a 5 percent goal on contracting. We are working on that. We have not reached that goal, but I think we have 

an opportunity to do more. 

One of the first things I did as soon as I took office, my initial 

first trip, was to launch a ChallengeHER event to help the word 

get out and also to promote more matchmaking opportunities. But 

with respect to capital, all of our efforts have been to make sure 

that all of the stream of capital is available to everybody in that 

regard. And I can tell you that so many bankers always say that 

they want to get the bigger loans out, and we have to make sure 

that we are pushing forward on the small dollar loan. 

So you probably have heard, I know that you have been support 

of the fact that we have zeroed out fees on loans under $150,000. 

We are getting the word out through our micro lending program 

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about that, and we are looking at technical assistance, which I 

know is so vital. And then, of course, the system that we just recently put in place around the predictive scoring will help community banks get more loans out to women as well. 

Ms. VELA ́ ZQUEZ. Administrator, I would like to hear at least 

one or two specific steps that you intend to take in order to make 

sure that when you come to us and ask to increase the cap, that 

you can put more money out there. That we benefit a sector that 

is growing, because we know that women-owned businesses are 

growing faster than any other group within the economy. But yet, 

they are facing problems in accessing capital. So I would like to 

hear that you are going to revise, look, the 7(a) program, the mission of it when it was created was to put money into the hands of 

able and credit worthy entrepreneurs that for whatever reason had 

problems accessing capital through traditional banks and traditional lending institutions. So I would just like for you to go back 

and review the data and see what specific steps you will take. 

Now I would like to ask you about Super Storm Sandy, because 

this is close to home. It happened in New York and the Tri-State 

area. Right after Katrina, we revamped the disaster program, and 

we provided tools that gave the flexibility for SBA to act quickly 

and swiftly and provide a system that homeowners and small business needed in a timely manner so that we could save those businesses that were impacted by any disaster, any natural disaster. 

Here we are. The OIG is going to come out with a report on the 

response of the disaster loan program for Sandy, but what we know 

is that once again, the disaster program has been exposed, and it 

shows the shortcomings as long processing times averaged 46 days 

for small businesses. The budget shows that SBA has requested 

$186.9 million for disaster administration next year. 

In what ways will this funding be used to reduce processing 

delays so that businesses and homeowners can get funds more 

quickly? 

Ms. CONTRERAS-SWEET. Thank you again, Congressman, for 

that question as well. 

Let me just say to you that I cannot speak with great specificity 

about what happened in the past, but what I can tell you is that 

when we heard about the disaster in the State of Washington, I 

flew out there immediately to meet with all the people in the Oso, 

Darrington, and Arlington communities, and I can share with you 

that within 24 hours of hearing that the disaster was declared, our 

people were on the beat. And within a few days, money was out 

the door. And so I think that our systems continue to be refined 

and continue to be evolve, and will be strengthened over time. I am 

now on it, and I am delighted to tell you that I think we are making great progress. 

Moreover, I just spent yesterday with those who process our 

loans to find ways in which we can develop organizational systems, 

to make sure that we are processing them more efficiently, and 

form a more informed basis. 

Ms. VELA ́ ZQUEZ. Well, I would like for you to come back to the 

committee or send us an answer to my question because we provided specific areas that you needed to improve, and to execute 

those that were continued within the disaster program legislation 

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that we passed. And some of those tools that were included were 

not used, and I would like to know that, in fact, you have implemented them so that the next time you are ready to answer and 

provide the assistance that those businesses need. 

About Washington, I do not know. I hear you, but the numbers 

will tell us whether or not you were able to provide the loans that 

those businesses needed, because in New York, many of those businesses are not in the system today. Studies show that when a disaster loan strikes, it will take—if you do not provide a response, 

if you do not provide the system that they need within the four 

weeks after a disaster, the probability of those businesses not succeeding and getting back on track are very, very high. So after 

Katrina, now Sandy, I hope, and I pray that we will not face any 

other natural disaster. But we cannot fool ourselves. We know that 

it will happen again, and we want to make sure that you have everything you need to have in place so that the administration is 

able to provide the system—that we promised, that this government promised. 

Ms. CONTRERAS-SWEET. I just wanted to add, Ms. Vela ́zquez, 

that my mother-in-law experienced Northridge earthquake, and I 

have experienced the riots of Los Angeles. And I want to tell you 

that disasters are very important to me. I have met with our district offices. I have gone to the sites, and I track our numbers every 

day. And I am working with our department directly to assure that 

every one of our programs is well executed and on-time, and ontarget budget-wise. 

So I thank you for your concern to this topic. I want to assure 

you that we are on it. Thank you. 

Chairman GRAVES. Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Madam Administrator, I will take a moment to follow up on a letter that I sent to you, me and my colleagues as well, to the Agency several months ago. The letter addressed changes to the SOP 50-10F, which states we still have 

some concerns about with the overall policy, but I have heard some 

assurances from SBA that the policy is currently being amended. 

I am pleased to know that. What I am following up on today is how 

the changes came to be, which is without any public input. 

According to the regulations, it is required to obtain comment 

from the public on its rules, and given that fact, many of the standard operating procedures governing the loan programs are actually 

rules under the guise of standard operating procedures. What actions are you taking to ensure that the public can offer comment 

on changes to SBA standard operating procedures? 

Ms. CONTRERAS-SWEET. Thank you again for that question. 

We are examining all ways in which the public can engage the SBA 

while using the usual governmental procedures as well as we are 

deploying smart systems to make sure that people can communicate with us in the current ways of technology today. And so, for 

example, we are now launching more initiatives around connecting 

through the social networks. Our people are getting out in the field 

more. We are directing them to get out and to do front-end conversations so that we can be proactive in the community. And I 

want to ensure you that—— 

Mr. LUETKEMEYER. Let me interrupt just a second here. 

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Are you advertising this so people who have concerns about it, 

people who will be in the process of utilizing these services can find 

this opportunity for themselves? Or is it just stuck on a computer 

site somewhere and you have got to go digging, digging, digging before you can find it? 

Ms. CONTRERAS-SWEET. Thank you for that comment. 

No, the Agency has been very proactive in connecting. We have 

so many outlets to engage the outlet. One, we meet regularly with 

the NAGGL partners, our government guarantee lending partners. 

We meet with people through our Women Business Centers, 

through our SCORE partners, through our Veterans Business Outreach Centers. Our regional administrators are out in the field. 

Our district directors are out in the field, and our key program 

lead, regularly hold comment opportunities for those who are affected by any of our programs, to be able to provide feedback and 

input. 

Mr. LUETKEMEYER. Well, the concern is that it did not happen 

properly on this situation that we tried to address with the letter, 

and you are assuring me that that is not going to happen again. 

Ms. CONTRERAS-SWEET. That is correct, sir. 

Mr. LUETKEMEYER. Following up, in your statement you say 

that on each 7(a) loan, SBA-1 will save banks hours of processing 

time and money. Do you have a study to show how many hours it 

is going to save? 

Ms. CONTRERAS-SWEET. I can share with you, Mr. Chairman, 

that—excuse me, Mr. Congressman—that as a banker, I can tell 

you that first and foremost what we have to do as a banker is accept these loan documents through a fax machine, and we communicate with our client through a fax machine. And so when you consider the smart technology that is available today, it is important 

to sort of blow up the fax machines and allow the SBA to be current with—— 

Mr. LUETKEMEYER. Madam Administrator—— 

Ms. CONTRERAS-SWEET. Yes? 

Mr. LUETKEMEYER. As a banker, I am telling you, asking you, 

where is the information to back up what you said? I deal in facts. 

This is a statement that should have facts, studies, something 

backing up. I am asking you have you got a study that shows how 

many hours you are going to save. Yes or no, do you have a study? 

Ms. CONTRERAS-SWEET. Mr. Chairman, we do have an understanding. We have a very clear understanding that when you cut 

out paperwork and extra visits—— 

Mr. LUETKEMEYER. So in other words, you do not have—— 

Ms. CONTRERAS-SWEET. And then what you do is when you 

launch a pilot, then you track the metrics and then we will be able 

to come back and report to you. 

Mr. LUETKEMEYER. So we have not tracked the metrics yet? 

Ms. CONTRERAS-SWEET. We have not launched the program 

yet. 

Mr. LUETKEMEYER. So you do not know how much you are 

going to save yet? 

Ms. CONTRERAS-SWEET. We will track the metrics. 

Mr. LUETKEMEYER. It may cost more hours. 

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Ms. CONTRERAS-SWEET. Mr. Congressman, I have not seen a 

program that when you take out steps and steps and take out a 

lot of paperwork, that it ends up costing more. I just have not seen 

that in my experience. 

Mr. LUETKEMEYER. Madam Administrator, you are talking 

with somebody who was with the government here. We deal with 

this every day. Every day our constituents of inundated with more 

regulations, more work. You take off two regulations, you put on 

five. It happens all the time. And here you are telling us this is 

a wonderful program. I hope it works. All I am asking for is documentation that can prove what you just said. And you cannot do 

it. 

Please do not come to this Committee and make statements if 

you cannot back them up. That is my point. And it is a pretty simple request here. It is made on page two, the bottom of two here. 

I see my time is up. 

Ms. CONTRERAS-SWEET. As an experienced banker, I can assure you it is going to take—it is going to take some savings, and 

it will be more efficient. And I will be delighted to buy you lunch 

if that does not happen, Mr. Congressman. 

Mr. LUETKEMEYER. Madam Administrator, as a fellow banker, 

I can tell you this stuff causes he headaches, heartburn, and costs 

me lots of money because it takes lots and lots of time of my people 

in my business to adjudicate and work with. 

Thank you, Mr. Chairman. I yield back. 

Ms. CONTRERAS-SWEET. I am hearing great enthusiasm from 

our banking partners. Thank you so much for your support. 

Chairman GRAVES. Ms. Chu? 

Ms. CHU. Administrator Contreras-Sweet, welcome. 

Ms. CONTRERAS-SWEET. Thank you. 

Ms. CHU. I have questions about the SBA 7(a) Guaranty Loan 

Program and the 504 Loan Program. I know they both fill critical 

needs in the market for small businesses that cannot access traditional lending sources. It is important that these loans reach underserved communities and the small business owners that need 

them the most. So my question has to do with whether the program is reaching its intended target. Can you tell me about the 

lending demographics of the 7(a) loan portfolios of the lenders, such 

as the types of loans being administered and what types of communities have been receiving the loans for the past two years? 

Ms. CONTRERAS-SWEET. Thank you for that question. I am 

pleased to say that what we are learning in the loans under 

$150,000 are dramatically up. We are seeing that the women loans 

are up, the African-American loans are up over 100 percent. I believe the women loans were up 35 percent. Every single target population has gone up since we have zeroed out fees on the 7(a) loan 

on the community advantage loan. So we need to continue to push 

that because I think that that is where so much of our diversity 

is looking for capital at the lower end just to start their business 

and to grow it, but we need to also continue to provide the continued continuum of capital so that is they grow and scale up. They 

also have the alternative products available to them. 

Ms. CHU. And can you submit for the record information on 

whether any of the top 7(a) lenders have internal loan policies that 

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restrict who gets a 7(a) loan? For example, do any of these lenders 

not make loans under a specific size or only make loans available 

to certain industries? 

Ms. CONTRERAS-SWEET. I cannot speak for every financial institution, but clearly different programs, different banks have different programs. We are encouraging all of our banking partners 

to partake more and more of the SBA, and that is part of the work 

that I have underway. I am also expanding, as I mentioned earlier, 

that I think it is also important to continue to engage the credit 

unions, and I also think that it is important that as we think about 

the continuum of capital, that we also study and examine what role 

the SBA can play, if any, in helping direct also those seeking to 

have more access to capital to the alternative financing channels. 

I was interested, for example, yesterday you probably heard that 

the Apple Company just launched a pay program, Apple Pay. And 

so all of those, when you see that Square launched a lending program, when you see that Amazon launched a lending program. So 

all of these have to be studied so that we understand how the SBA 

plays in that community to make sure that we are complementary 

to what is taking place in America. 

Ms. CHU. And so we could get information such as that? 

Ms. CONTRERAS-SWEET. We would be delighted to look into 

what we can offer you, and we would be delighted to reach out to 

our financial partners to see what we can get you. That is important data, and we track it internally, and I would be delighted to 

see what we can share with you just honoring the Privacy Act and 

all the other things that we have to honor, but I am delighted to 

share with you the data that we are tracking. 

Ms. CHU. Very good. 

The SBA 504 Loan Refinancing Program helped many small 

business owners survive the recession and go on to create more 

jobs and bolster the economy. However, the program expired in 

2012. In the last year of the program, over 2,400 small businesses 

benefitted from refinancing over $2.2 billion. I introduced H.R. 

1240, the Commercial Real Estate and Economic Development Act 

(CREED), which would help reauthorize this program. At a time 

when our economy is still recovering, do you think extending the 

SBA’s 504 Loan Refinancing Program would be beneficial to small 

business owners? 

Ms. CONTRERAS-SWEET. I had some knowledge of when it was 

first launched the first time, the first go-around, and I can share 

with you that I thought that it was not left exactly, you know, in 

a coherent way at least to us in Los Angeles, and so it took a little 

while for it to take hold and to get started, but once it did I 

thought it was an important tool, and I would be supportive of a 

504 Refi continuance, and I think, in fact, we are hoping that everything will go well and you will see it in our budget soon. 

Ms. CHU. Very good. 

Ms. CONTRERAS-SWEET. Thank you. 

Ms. CHU. You referred a little bit earlier about the goal for 

women-owned businesses, and I was glad to join you at the 

ChallengeHER event in Los Angeles to help women-owned businesses get contracts with the federal government. And congratulations on getting the 23 percent contracting goal for small business 

SBREP-219 with DISTILLER

13 

met this year. However, the contracting goal for women-owned 

business is 5 percent, and yet, women only got 4.3 percent of all 

federal contracts. And that means that they missed out on $2 billion worth of federal contracts. What can we do to finally get to the 

5 percent? 

Ms. CONTRERAS-SWEET. You are right to hone in on that challenge. Women represent half of our population, and it was not, you 

know, the old days where we always had, you know, an alternative 

as to whether we worked or not. So many of us now are the sole 

providers for our families, so this is a very important body of work, 

and I can share with you that we will continue to reach out 

through all of the channels that the SBA has. Again, through the 

vast network of Small Business Development Centers to the 

Women Business Centers. But it is also important that we have an 

extra tool at every buying activity. When you are there at the 

ground at the actual buying activity and that buying officer has an 

important tool that he has for other HUBZone and for our vets, 

and that is sole-source authority, we are seeking sole-source authority for women as well so that they can be at the same level and 

be parity with other disadvantaged groups. And I have also tasked 

the SBA with expediting the way in which we conduct the study 

to find if women are found to be underserved in more of the NICs 

codes because we think that if that study proves to be that they 

are underrepresented in other categories, then that is another tool 

that the SBA and its officers can use in the field. 

Ms. CHU. Thank you. I yield back. 

Chairman GRAVES. Mr. Schweikert? 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Madam Administrator, and forgive me because I am harkening 

back to I think one of my very first hearings sitting on this Committee a couple years ago on the discussion of the adoption of technology for loan management, for loan servicing, for participating 

lenders’ application process. Was it not supposed to come online 

two years ago? Some of that moving from a proprietary system to 

sort of more of an open source system? I mean, where are you at 

right now technology-wise? And why a couple years behind. 

Ms. CONTRERAS-SWEET. Yeah. Thank you so much, sir, for 

that question. 

Technology is key in executing what we do when the SBA is 

interacting with financial institutions that all are deploying some 

of the smartest systems America has. You recall when—at least 

when I was growing up—I can speak for myself—you would go into 

a bank to actually deposit your check so that you can—— 

Mr. SCHWEIKERT. I have been involved in the technology side 

of collections, so more just let us do technology talk instead of policy talk. 

Ms. CONTRERAS-SWEET. That is what I was referring to. 

So in terms of policy, I can share with you—— 

Mr. SCHWEIKERT. Why the two-year delay. 

Ms. CONTRERAS-SWEET. So I can share with you that we feel 

that technology can help us in many ways be efficient and effective. 

With respect to the question that you asked—— 

SBREP-219 with DISTILLER

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Mr. SCHWEIKERT. I am desperately trying not to be rude. I understand that is the same discussion we had a couple of years ago. 

Why the two-year delay in what was supposed to be the rollout? 

Ms. CONTRERAS-SWEET. Of the seven tranches of work, they 

have now been all completed, but what I wanted to share with you, 

sir, is that at least in my view, as I see it, it is important that we 

continue to evolve technology. So I would hope that the SBA never 

sees that their work in technology is complete. 

Mr. SCHWEIKERT. Okay. So a quick checklist. So loan servicing 

and management is now no longer on a proprietary system but on 

a system that all participating lenders have trackability authority 

through the web; right? 

Ms. CONTRERAS-SWEET. All of the seven subprograms under 

the LMAS have now all been completed. 

Mr. SCHWEIKERT. And so if I am my community bank or credit 

union, I can now do my loan applications and my filings all 

through the web now? 

Ms. CONTRERAS-SWEET. As soon as we complete the SBA-1, 

which will be in Q2, then we will be able to, as I was outlining earlier, we will be able to do everything online with respect to the 

seven—— 

Mr. SCHWEIKERT. And the two-year delay on that is just, what 

is it, technical issues? Contracting issues? Security issues? Any 

idea what drove that? 

Ms. CONTRERAS-SWEET. I can tell you that at this point they 

are all complete, and I can tell you that technology is an ongoing 

opportunity for us to continue to be efficient. 

Mr. SCHWEIKERT. And technology will always be an ongoing 

opportunity. The two-year delay was because of what? 

Ms. CONTRERAS-SWEET. Mr. Congressman, what I can tell 

you is that we will continue to evolve it, and I hope that technology 

is never a completed project. 

Mr. SCHWEIKERT. If you have one of your staffers here who actually speaks technology, I would love a response actually to that 

question to be helpful. 

There is a conceptual enlightenment because I think this is a 

great opportunity particularly for minority and underserved populations and everything out there, and even another article from two 

days ago that one of the earlier executives of Google and others are 

moving into crowd-based funding, crowd-source lending. It is almost a peer-to-peer type lending, particularly I know our ranking 

member here has always had an interesting sort of the micro lending world, and many of us have had—how bureaucratic, you know, 

if you have ever done an SBA loan from walking in the door and 

been handed the paperwork—— 

Ms. CONTRERAS-SWEET. Yeah, it takes your breath away. 

Mr. SCHWEIKERT. How does the world change for the SBA 

when I have dozens of peer-to-peer lendings out there now who are 

doing almost a direct loan environment? Does the SBA—have you 

looked at the technology? Remember you were just talking 

about—— 

Ms. CONTRERAS-SWEET. Sure. 

SBREP-219 with DISTILLER

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Mr. SCHWEIKERT.—the future and what is happening around 

us, and the cost of those funds seems to be coming in very competitive. 

Ms. CONTRERAS-SWEET. Indeed. 

Mr. SCHWEIKERT. As to the lack of staff and bureaucracy and 

their technological way of doing credit modeling. Has that changed 

the world of access to capital? 

Ms. CONTRERAS-SWEET. I think it does. I absolutely think 

that these are all very encouraging developments. When I met with 

Accion, Kiva Zip, Cabbage, PayPal, Square, all of these I think are 

wonderful developments, and I think it is important for the SBA 

to examine, as I was referencing earlier, that we examine what 

proper role we have in understanding which ones are working effectively. Again, track their performance accountability, and then 

be able to properly counsel small businesses so they can navigate 

through those strategies. 

Mr. SCHWEIKERT. Would there ever become a time if certain 

categories had very egalitarian access to capital because—I am actually, I have a couple apps now where you can actually, on Crowd 

Source, loans for your small business right off your phone—that 

the SBA would say this market now is appropriately served. Our 

needy populations are receiving; that the SBA will come here to 

Congress and say, ‘‘Job well done. The market found a way to serve 

this. We are now going to go someplace else.’’ 

Ms. CONTRERAS-SWEET. I think your question is a really important one, and that is why as soon as I arrived at SBA I 

launched the ‘‘Smart, Bold, and Accessible’’ initiative, because I 

think it is important for Congress to allow us to be flexible, to 

allow us to evolve, to make sure that we are addressing the emerging technological advances, not just to provide access to capital but 

for counseling. We have international opportunities that we can 

also use technology for, and so I think that these will all present 

new opportunities for the SBA. 

Mr. SCHWEIKERT. And forgive me, Mr. Chairman, for going 

over the time. It is an area of personal interest. 

Thank you, Madam Administrator. 

Chairman GRAVES. Ms. Hahn? 

Ms. HAHN. Thank you, Mr. Chairman, Ranking Member. 

Thank you, Madam Administrator Contreras-Sweet for being 

here today. I am very pleased that you are in this position. I think 

that you come to this position at a great time. We are coming out 

of the recession. Small businesses are becoming successful. They 

are growing. You and I both grew up in Los Angeles, and I know 

you were in Los Angeles just recently talking about some of your 

initiatives. And a lot of my questions have been asked, but I did 

want to, just a couple of things, one was just to hear you talk a 

little bit more about what we can do to reach out to our womenowned and minority businesses. I know before the recession, 

women-owned small businesses were receiving 40 percent of the 

SBA loans. Now they are receiving just 16 percent. African-American entrepreneurs have gone from receiving 11 percent of the SBA 

loans to just 2.3 percent. So I do not like that trend, so I would 

love to hear—I do think some of the changes that you have implemented—not charging the fees for the loans, is going to be valuSBREP-219 with DISTILLER

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able, and I know you have already seen an impact from that. I am 

wondering if enough changes have been made or are there other 

things that we should look at changing? And then I meet with 

small businesses all the time. It is one of the things that I do. 

And by the way, you have some great folks on the ground in Los 

Angeles. Victor Parker is a star, and he has worked with me on 

every roundtable I have had. We have done stuff with the Port of 

Los Angeles, connecting our small businesses with the international trade industry, and he is terrific. 

The other complaint that I get from a lot of my small businesses, 

particularly some of the new startups, not really clear on how they 

can access small business resources. They are not really sure what 

the SBA is or does. How do they access them? Is there a better way 

that we can outreach to our small businesses, particularly the new 

ones? And what is available? Because listening to you, there is a 

ton of stuff that is available and innovative and creative that you 

are really going to be implementing, and how do we get that word 

out to the businesses? So two things, women, minority-owned businesses, and then could we do a better job of outreach? 

Ms. CONTRERAS-SWEET. Thank you. And it is good to see you 

again, too. Thank you for your support while we were in Los Angeles. 

I can share with you that one of the things, and I think it addresses also the earlier question, and that is how do we evolve as 

an organization to meet the challenges of today’s economy? And so 

to that end, that is why I launched the ‘‘Smart, Bold, and Accessible’’ initiative. We are examining the ways in which we can modernize the Agency to make sure that we are current and relevant 

in today’s technological pace. And so in that regard, we are examining all the smart systems that are currently out there in the private marketplace and to understand how we can complement those 

systems in SBA. Who are they reaching effectively and who are 

they not, and where should we be to make sure that we are filling 

that gap. So that is an important role. 

In that regard, Madam Congresswoman, what we did is launched 

a program that we call VERA VSIP, which is where we offer those 

who have served the SBA so well, so eloquently, and have helped 

to create two out of three new jobs that we are finding in America, 

but some of them are saying it is time for me to return and spend 

more time with my family. And so in that regard, we are offering 

some of our employees early retirement. What that will allow us 

to do is to reexamine how we deploy our personnel to more effectively and strategically respond to today’s and tomorrow’s challenges. So that is one. How we align our—— 

Ms. HAHN. You better not redeploy Victor Parker. 

Ms. CONTRERAS-SWEET. Well, and to that point, I have traveled now the country and meeting with our district offices, and in 

each district I hear a story about how special our district offices 

are, so I am delighted that you had that kind of experience. 

The second thing that I wanted to say is for our women, NativeAmerican, African-Americans, Latinos, and women—excuse me, 

and Asian-Americans, we need to make sure that we are accessible 

to all, and that is why the SB, and the A stands for accessible. And 

so again, how do we use technology? How do we outreach to these 

SBREP-219 with DISTILLER

17 

communities? How do we make sure that our products are being 

responsive? Setting our fees at zero for loans under $150,000 will 

help and go a long way. Tracking and meeting regularly with the 

financial institutions, both the private and the public sector, the 

credit unions who have now again we have reached out to them 

and they have accepted the challenge of doing more of the small 

dollar loans, and by that, Ms. Congresswoman, I am speaking to 

the loans under $50,000, which is where many women who just 

want to start their business want to be. And so I am focused on 

the three initiatives—access to capital through every channel that 

is available to the SBA. I am committed to making sure that 

through our vast network, national network of Small Business Development Centers and all of the other partners; that we are reaching out to women to talk to them about the strategies, to make 

sure that they have a proper plan in place for their optimal success. And the third piece of it is just in general to make sure that 

we are getting contracting opportunities to women in three avenues. First, with the federal government. The U.S. is the largest 

procurer in the world. We want to make sure that we meet the goal 

of 5 percent with women. Second, we want to make sure that we 

are working to make sure that more women benefit from the private sector supply chain. To that end, the president announced a 

15-day pay period. So in 15 days, the federal government pays 

small businesses. For me, having been in a small business, and 

having a large corporation hold me up for 90 days, I will tell you, 

15 day is sweet music to me. That was an important tool. And so 

we are challenging the private sector in their supply chain to follow 

our lead. And the third is how we help small businesses partake 

of the largest growing market, and that is outside of the U.S. 

Ms. HAHN. Thank you. 

I yield back. 

Chairman GRAVES. Ms. Meng? 

Ms. MENG. Thank you, Chairman Graves and Ranking Member 

Vela ́zquez. And I, too, want to congratulate you, Madam Administrator, and thank you for the tremendous job that you have been 

doing, and especially in terms of outreach since day one. 

A few months ago, we had a field hearing with our Subcommittee 

with Chairman Richard Hanna of the Subcommittee and our Ranking Member Nydia Vela ́zquez in our district in New York, and 

talked a lot about the issues that a lot of minority- and womenowned businesses face in terms of accessing capital and lack of outreach. And I do want to thank the SBA members of your team for 

coming to our district recently to explain the new lending program 

to a lot of our local community banks, especially the banks that 

serve minorities. So I just want to emphasize that whatever we can 

do here in Congress to continue to spread the word and help with 

outreach I think will continue to be very important. 

My question is actually about veterans. I know that the SBA has 

a Boots to Business pilot program that so far has relied heavily on 

Internet-based video instruction, and I just wanted to know have 

you found that to be effective? And what is the rationale for relying 

on online training modules as opposed to maybe person-to-person? 

Ms. CONTRERAS-SWEET. Thank you. I think that is an important question. I cannot tell you how proud I am to know that the 

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SBA is connected with those who are defending our freedoms and 

upholding our values. And so it is important that the SBA continue 

to refine and continue to expand the Boots-to-Business Program. It 

is largely electronic because we are in all the world installations, 

and so this works so that first I think while people are still in-service, they are trying to examine what they are going to do next, and 

many times their first—and appropriately so, their first thought is 

how do I just get home and be with my family again. 

And so you want to just begin to give them some exposure so the 

first is, you know, a couple hour video and then an eight-hour program, and then we finally launch into the fuller program. And so 

it is an important, you know, it is important to allow them to ease 

into the thought, to explore entrepreneurship, but once they are 

back at home and back in their communities, then we have the full 

panoply of programs that the SBA offers. Our VBOC centers, the 

Veterans Business Outreach Centers, the SBCDs, our SCORE partners are out there, and the SCORE partners often go to your place 

of business to give you personal advice. And so I would hope that 

once they are back in their community that they can partake in the 

full panoply of offerings that the SBA community has in the communities. 

Ms. MENG. Thank you. I yield back. 

Ms. CONTRERAS-SWEET. I should just add one more that I am 

also really proud of because, you know, I know that you also care 

about women, and so marketing is becoming increasingly digitized, 

you know, where you have to make it more and more personal. And 

so we learn from our women armed forces folk that they are very 

interested in having their own program. And so we launched a specialized training that we call VWISE, Veterans Women Inspiring 

the Spirit of Entrepreneurship. And I was in New York to help 

launch that program, and there was just such a great dynamic to 

see that taking place. That program was done in partnership with 

Syracuse University, which also has more services there available 

for them. 

Chairman GRAVES. Ms. Vela ́zquez? 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Administrator, in the Small Business Goaling Report released by 

your agency for the last fiscal year, it shows that the overall small 

business goal of 23 percent was finally achieved. And some of the 

members made reference to that. But when you look at the list that 

is included in your report, I would like to ask if you are aware that 

Northrup Grumman, Raytheon, and Chevron have been included as 

small business contracts by some of the agencies. I do not know 

how. I do not know when they became small businesses, but I am 

asking you, were you aware that agencies were taking credit toward their small business contracting goal by the fact that they included contracts that were given to larger companies? 

Ms. CONTRERAS-SWEET. Yes, Madam Ranking Member. 

In reviewing the list, I had a similar question, and when I took 

a deep dive to understand what the answer was to that important 

question, what I learned is that we have a rule in place that says 

that once you get in a contract with government, that you are given 

five years. And so if a large company acquires a small business, 

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then it is grandfathered in for a number of years. And so that is 

one of the instances that we identified. 

But I can assure you, and the really important thing is that the 

SBA has disbarred more companies in the last four years than has 

happened in the last 10 years combined. So I want to assure you 

that the program is working and that we are delighted that we 

have met the goal and that now small businesses are getting their 

fair share. 

Ms. VELA ́ ZQUEZ. So will you make a commitment with this 

committee that you are going to go back and assess and review 

every contract that was given to these companies so that you can 

assure us that they are not in violation of the contracting goals to 

small businesses and the numbers are not being cooked by some 

of the agencies? 

Ms. CONTRERAS-SWEET. I can share with you that the community has strong policing activities. 

Ms. VELA ́ ZQUEZ. No, you do not, or maybe now, but administrator, let us be clear, the GAO conducted an investigation, and we 

held a hearing when that report was released. And what it showed 

is that many contracts that were intended to go to small businesses 

were given to large companies, and that is in violation. So I just 

want to make sure that we do not ask the GAO to go and do another investigation and it is going to show again that the proper 

oversight within the agency is not in place, and therefore, this kind 

of situation happens again. That is all I am asking you. Because 

at the end, those small business contractors that are playing by the 

rules are the ones losing out. 

Ms. CONTRERAS-SWEET. I can share with you that I am keenly committed to making sure that small businesses get their fair 

share. The president asked me to do three things: run an effective 

SBA, be a voice for small businesses, and help take them to the 

next level. In that regard, we want to make sure that they get the 

23 percent that they deserve, and I consider that, by the way, a 

floor, not a ceiling. And so in that regard, we are amping up. We 

are challenging more. I can tell you that our people are motivated 

and they come in and they tell me about, you know, what they are 

doing out there to make sure that they are speaking up and fighting for small businesses. We pass hundreds of thousands of contracts, and so generally, the system is working, and I am proud to 

say that our team is on it. There are good cops on the beat. And 

the policing mechanisms that we have in place are working. And 

as I said, we have disbarred more abusers in the last four years, 

and the penalties are stiff, and we will continue to convey the message that we are going to have a zero-tolerance policy. 

Ms. VELA ́ ZQUEZ. Thank you. 

Chairman GRAVES. Mr. Collins? 

Mr. COLLINS. Thank you, Mr. Chairman. 

Thank you for coming in today. I guess my question is whenever 

I hear about a new program like SBA-1, on the one hand that is 

good news. The only concern would be in the past—we will use the 

word ‘‘past’’—the GAO and the SBA’s inspector general both have, 

on occasion, found some problems with the SBA’s management of 

information technology. So now as we are looking at a new program, can you share with us some of your thoughts on how you are 

SBREP-219 with DISTILLER

20 

going to make sure that is integrated, is seamless, works well, and 

motherhood and apple pie? 

Ms. CONTRERAS-SWEET. Thank you so much, Mr. Collins. 

Again, I think technology can be a very important tool for us, 

and that is why I launched at the Agency an initiative that I call 

‘‘Smart, Bold, and Accessible,’’ which really refers—the underpinning really is how we modernize the SBA, and so I think technology investments can be key in helping us become more efficient 

and effective throughout the system. SBA-1 will be complementary 

and the good news is that it is adding functionality from an existing contract that we already have, and so we are able to continue 

to manage all of our programs to make sure that they are seamless, and I am delighted to say that I look forward to coming back 

and sharing with you how effective the SBA-1 will become. We 

think that it is going to increase lending in our 7(a), our core lending product, and allow more people to get these loans that otherwise would be sitting on the sidelines. 

Mr. COLLINS. So did part of this come from the lenders or from 

the borrowers where they would say another vehicle like this could 

be useful? Is this, you know, if I am a small business, am I going 

to go to SBA-1 to initially apply for a loan, or is it something that 

I am going to apply to my lender and he is going to use SBA-1? 

Ms. CONTRERAS-SWEET. Thank you for that clarifying question. It is a platform that we are setting up for our lending partners, and so we process our loans through our lending partners. So 

what the client will see is just a much cleaner interface and more 

important, they will be able to do e-consent. So many times when 

you are an entrepreneur and you are fighting, you are the CMO 

and you are the CFO and the CFO and the CEO; you do not always 

have time to go into the financial institution. So now this will be 

able to all be done online and we will have the e-signatures, the 

e-verify that you see on other products in the commercial space, 

and so they will have a seamless interaction with their financial institution, and that institution will do the same with us through 

this platform. 

Mr. COLLINS. So would the borrower initiate his loan request 

through SBA1, the borrower? 

Ms. CONTRERAS-SWEET. No, I am sorry. I apologize if I did 

not clarify. It will still be the bank that will initiate the loan, but 

they will now be able to interact with their borrower on line, and 

the lender will also be able to interact with the SBA now online. 

Mr. COLLINS. So it generates out of the lender, but the small 

business can be using it as well as the portal of information? 

Ms. CONTRERAS-SWEET. Yes. Financial institutions already 

have largely the e-consent in these tools. The challenge has been 

that SBA has not been able to interact with the institution online. 

And now this will facilitate that intermediary role that the bank 

relies upon. They will now be able to also be online. So most financial institutions have already had this technology. Now the SBA is 

catching up. 

Mr. COLLINS. Well, I am glad to hear you are aware of what 

we would be asking, which is about how it actually rolls out, and 

I am confident you will be reporting back very good results. Thank 

you very much. 

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Ms. CONTRERAS-SWEET. I look forward to it, sir. 

Mr. COLLINS. I yield back, Mr. Chairman. 

Chairman GRAVES. I just have one quick request. Back in 

March, we sent a letter to the SBA. We were asking for about 145 

separate requests on information concerning the process by which 

the SBA reviews franchise agreements, and at that time the Agency said that they needed to address some concerns or some issues 

that they had raised in the letter, and so I agreed to delay that, 

the compliance with that. And so that was about six months. I am 

just curious when we can expect some answers or some revisions. 

Ms. CONTRERAS-SWEET. Thank you again for that question, 

Mr. Chairman. 

The franchising opportunities are vast and complex. And I can 

tell you that at first blush, I think the notion of a plug-and-play 

company is really attractive. You know, for small businesses, when 

we go out to launch a business, first you have to think about how 

you are going to lay out your plan, how you are going to brand it, 

how you are going to create a niche market, how you build barriers 

to entry, how you attract customers, your marketing initiatives. 

And so when you contemplate a franchise, it is really a wonderful 

tool that you can come in with a branded name, you can come in 

with an institution that already has addressed the branding question and has mentoring in place. So these are very attractive programs for the small business person. So I am very interested in 

this. I have met with the association to understand where they are 

headed and reviewed with our general counsel and our capital access and our partners to understand exactly what the opportunities 

are. And I can share with you that we are clarifying these more 

and more. We are staffing it up because I think this is an important alternative, and we will be sure to get you those answers that 

you asked in the letter that we reviewed. Thank you. 

Chairman GRAVES. Soon, I hope. 

Ms. CONTRERAS-SWEET. Yes, of course, sir. 

Chairman GRAVES. Any other questions? 

With that, we are honored to have you testify before the hearing, 

and we look forward to—I think the whole Committee looks forward to working with you in the future on issues, obviously, that 

you are facing, and we feel that the country is facing when it comes 

to small businesses. 

And with that, I would ask unanimous consent that all members 

have five legislative days to submit statements and supporting materials for the record. And without objection—— 

Ms. CONTRERAS-SWEET. Mr. Chairman, if I may, I do not 

know if I will have another opportunity to come before you again, 

and so I just wanted to publicly acknowledge your leadership and 

thank you so much for your stalwart effort in leading the Small 

Business Committee. You know small businesses are creating so 

much of the economic activity in this country, and your leadership 

is well recognized and appreciated. Thank you so much, sir. 

Chairman GRAVES. Thank you very much. I appreciate that. 

And this is my second to last hearing. There will be one more. 

With that, this hearing is adjourned. Thanks. 

[Whereupon, at 2:12 p.m., the Committee was adjourned.] 

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A P P E N D I X 

U.S. Small Business Administration 

Washington, D.C. 20416 

TESTIMONY of 

MARIA CONTRERAS-SWEET 

Administrator, U.S. Small Business Administration 

House Committee on Small Business 

Small Business Administration: Management & Outlook 

September 10, 2014 

Chairman Graves, Ranking Member Velazquez and distinguished 

members of this committee, thank you for this opportunity. Since 

being confirmed I have taken time to sit with many of you, and I 

know the members of this committee not only share my passion to 

promote entrepreneurship but have been actively engaged in supporting our nation’s small businesses. In my meetings with the 

Chairman and Ranking Member I have seen firsthand the bipartisan commitment of this committee, working together to help 

small businesses. 

I look forward to continuing this work to help these job creators 

in our economy realize their potential and put Americans back to 

work. At the SBA we remain focused on our core mission of facilitating access to capital, counseling, contracts, and disaster assistance. 

When meeting with our lenders, clients, and borrowers I understand their concerns because I have been in their shoes as an entrepreneur, five years as California’s chief bank regulator, and then 

starting a community bank. This guides my belief that the SBA can 

help more businesses create jobs. I have also learned the significant work that happens in this Committee, and the importance of 

working with you to make our programs better and the agency 

more efficient. 

SBA’s capital is infusing dollars into local markets and improving our economy. Small businesses inject capital into the economy 

more quickly as they cover payroll, buy equipment, and acquire 

local real estate. This is good for Made in America, Grown in America, and Invented in America. 

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In the 21st century, the SBA must be as innovative as the small 

businesses we serve. I want SBA to represent Smart, Bold and Accessible. This means we’re implementing smart systems, so our 

agency keeps pace with technological advances that change how 

Americans conduct their business. Championing bold initiatives to 

open new business channels for entrepreneurs within the federal 

government, corporate supply chains, and international commerce. 

And making our services accessible to small business owners, regardless of their gender, race, age, or neighborhood. 

From my first conversations with Chairman Graves and many of 

you, we see the prevailing challenge SBA faces is that our loan documentation is complex and labor-intensive, forcing banks to hire 

specialized staff, contract it out, or walk away from the loans. 

We cannot afford to lose these partners and turn job creators 

away. To combat this we launched a predictive business credit scoring model the SBA has been developing for more than a decade— 

combining an entrepreneur’s personal and business credit scores. 

This new scoring model is now available to ALL of our lending 

partners for loans of $350,000 or less. Making it easier and less 

time-consuming for banks to do business with us—and for entrepreneurs to do business with them. 

Strong stewardship of our flagship 7a program has allowed us to 

keep fees at zero on loans less than $150,000 and continue to operate at zero subsidy and we move closer to zero subsidy with the 

504 program. 

Next year we will roll out SBA One an interactive user-friendly 

platform. It will automate the uploading of documents and generation of forms, and allow for electronic signatures. On each 7A loan 

SBA One will save banks hours of processing time and money. The 

combination of predictive credit scoring and SBA One will incent 

more banks to partner with us to promote underserved lending, 

generating more loans and igniting economic activity. 

Being bold means opening new markets—both here and abroad. 

Over the next decade new markets around the world are going to 

open up, but only 1 percent of small businesses are selling to them. 

We’re focused on ensuring small businesses have the financing they 

need to engage internationally. 

I’m pleased to announce for the first time in eight years—the federal government met the 23 percent goal of federal contracting to 

small businesses in FY13. This was an important achievement, but 

we fell short of our women-owned business goal and must do more 

to meet that goal. 

The accessible component of the new SBA is close to my heart, 

as the face of entrepreneurship is changing in America. More of 

those faces today belong to women, Latinos, African-Americans, 

Asian Americans, Native Americans, veterans and seniors. In addition to promoting smaller-dollar loans, we are focusing on building 

referral networks with microlenders so new businesses can get the 

start-up capital. At the SBA our team is working to find new and 

creative ways to put micro capital into the hands of entrepreneurs. 

Ranking Member Velazquez and I have seen too many entreSBREP-219 with DISTILLER

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preneurs with great ideas and products default because of poor financial planning. We look forward to working with her and all of 

you to increase technical assistance to small businesses. 

Our guarantees allow lenders to make loans they otherwise 

would not. We fill market gaps. Every dollar we inject into the 

economy is capital that could potentially stay on the sidelines. 

Again, I want to thank all of you for your bipartisan commitment 

to small businesses, and how welcoming you and the entire small 

business community has been to me. 

With that Mr. Chairman, I would be happy to take your questions. 

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Questions for the Record 

Chairman Sam Graves 

Question 1 

According to SBA officials, the agency was to migrate its loan 

management accounting system from a proprietary system by January 1, 2012. When can we expect the SBA to complete this first 

step in modernizing its loan management accounting system? 

Response: All of the originally planned LMAS Incremental Improvement Projects (IIPs) were successfully completed; however, 

there has been some additional follow-up required by OIG and Independent Verification and Validation (IV&V) guidance. 

Additionally, SBA initiated a project to migrate the non-proprietary code to production in a new consolidated data center and complete the shutdown of the proprietary system. The following items 

have been completed: 

• Migration of user interfaces off of proprietary COBOL to a 

web environment. No lending partners or SBA personnel handle 

any loan transactions via a COBOL system. 

• Migration of loan management accounting system code 

from a proprietary system environment to a generic platform 

and software in June 2013. 

• Awarding of contracts for hosting facilities and hardware 

to support Production Operations of the generic loan management accounting system. 

All of this modernization occurred during record-breaking loan 

production years and without any material weaknesses in SBA’s Financial Audit. 

Status of the original LMAS Incremental Improvement Projects 

from SBA’s OIG’s report on September 30, 2014: 

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27 

Question 2 

In determining the priorities for the agency, where do you put 

implementation of directives from Congress signed into law by the 

President in comparison to initiatives developed by SBA personnel? 

Response: SBA’s core mission is to aid, counsel, assist and protect the interests of small business in America. Through the Small 

Business Act, Small Business Investment Act and other acts, there 

are statutorily mandated programs that the agency is responsible 

for implementing to carry out its mission. SBA also has statutory 

authority to establish and manage other initiatives to assist small 

business, including underserved communities and businesses. The 

SBA handles all of its programs with equal priority in management 

and oversight. We effectively execute on these programs daily and 

report their results annually to Congress. 

Question 3 

The SBA waives the upfront fee for loans under $150,000. Under 

what legal authority does the SBA waive the upfront fee since the 

statute provides that the ‘‘Administration shall collect a guarantee 

fee’’? 

Response: Section 7(a)(18) of the Small Business Act, 15 U.S.C. 

636(a)(18) provides the authority for the fee relief. This section of 

the statute sets a ceiling on the guarantee fee but no floor, which 

means SBA has some discretion in determining how low, including 

zero, that fee can be as long as it does not exceed the amount stated 

in 7(a)(18)(A). 

Question 4 

As you know, the Anti-Deficiency Act prohibits federal employees 

from agreeing to arrangements that exceed appropriated funds. 

Some SBA loans, secured by property, include covenants that may 

create undefined liabilities in the future for the government and 

thus might violate the Anti-Deficiency Act. What actions is the 

SBA taking to resolve these concerns? 

Response: Open-ended indemnification clauses in real estate title 

documents applicable to 504 project real estate collateral may create 

a violation of the Anti-Deficiency Act (ADA) if SBA were to take title 

to the property (during a foreclosure action). Certified Development 

Company (CDC) closing counsel and SBA District Counsel currently 

review real estate title documents prior to closing and identify such 

clauses. When identified, the CDC works to obtain a waiver of the 

clause as applicable to SBA, which ensures Agency compliance with 

ADA requirements. 

Since indemnification clause waiver(s) cannot always be obtained, 

SBA has established a procedure that ensures compliance with legal 

requirements while reducing closing delays. The procedure provides 

that if a waiver cannot be obtained, those projects will be tracked 

for further consideration after debenture purchase. 

We understand a legislative solution might be created to better 

address the issue. 

Question 5 

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Given the fact that the federal government has not met statutory 

goals for providing small businesses with subcontracting opportunities, should not the SBA reallocate some resources from its own entrepreneurial development initiatives to the hiring and training of 

commercial marketing representatives? 

Response: In FY14, SBA conducted approximately 1,300 subcontracting plan compliance or orientation reviews of large prime contractors. These reviews encourage large prime contractors to use 

small business subcontractors. In FY13, the federal government 

achieved 34% in subcontracting awards of its 36% goal, which was 

an improvement over FY12’s 33.6% achievement. The subcontracting 

achievements for FY14 will be released with SBA’s annual scorecard later in FY15. We believe our entrepreneurial development initiatives play an essential role in helping small businesses grow and 

create jobs. These efforts include a wide range of assistance services 

including contracting. Additional resources for CMRs and PCRs is 

one path to providing opportunity for more coverage, and SBA has 

requested and supported that in past budgets. 

Question 6 

Do you think that the SBA budget for FY 2015, which requested $39 million for new entrepreneurial development initiatives but 

only $5.8 million for lender oversight of a loan portfolio in excess 

of $100 billion, constitutes an appropriate allocation of agency resources? 

Response: SBA’s FY 2015 Congressional Budget Justification 

(CBJ) request for the Office of Credit Risk Management (OCRM) is 

$13,992,000 (Table 3, p. 18). This amount does not include salaries 

and benefits for the employees who perform the oversight function. 

The $5,827,000 amount you reference is listed as ‘‘Lender Oversight—7(a) Loans’’ along with a $1,825,000 amount listed as ‘‘Lender Oversight—504 Loans’’ (for a total of $7,652,000) in the FY 2015 

CBJ, Table 10, p. 26. Table 10 reflects an allocation of the costs of 

SBA programs based on a cost allocation study conducted in FY 

2013. The FY 2013 study did not fully allocate all of the lender 

oversight costs, such as contracts, to the oversight program. Some 

of the costs were allocated to the Office of Capital Access. This resulted in the discrepancy between the Table 3 and the Table 10 

amounts. In FY 2014, SBA revised the cost allocation survey to fully 

reflect the OCRM costs under Lender Oversight. Those revised figures will appear in the FY 2016 CBJ tables. 

Question 7 

To follow up on the concerns of my colleagues, since the answer 

was not provided during the hearing, do you have a study to show 

how many hours the proposed SBA One would save? Additionally, 

as required under federal statue and OMB guidance, can you provide the business case analysis for that project? 

Response: There was a BCAA conducted for SBAOne when the 

idea was first developed and the report demonstrated there would 

be significant financial savings as a result of its implementation. 

The BCAA is attached. 

Question 8 

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How many staff are working solely on SBIC issues? 

Response: 69 full-time employees and 1 part-time employee who 

is retiring in November 2014 are working solely on SBIC program 

issues. 

Question 9 

How many are working solely on issues other than SBICs (please 

identify both the issues and the titles of the staff)? 

Response: 5 full-time employees are working on solely SBIR/ 

STTR program issues. The titles are: 

(1) Assistant Administrator, Office of Innovation Technology 

(2) Technology Policy Analyst 

(3) Program Analyst 

(4) Program Analyst 

(5) Entrepreneur in Resident/Consultant. 

Question 10 

How many are working on both SBIC and other issues (please 

provide an estimate of resource allocation to each)? 

Response: 6 full-time employees work on SBIC, SBIR/STTR, 

and Innovation programs. The titles and estimated allocation for 

FY 2014 are: 

(1) Associate Administrator - 40% SBIC, 40% SBIR/STTR, 

20% Other (e.g. Innovation); 

(2) Deputy Associate Administrator - 40% SBIC, 40% SBIR/ 

STTR, 20% Other (e.g. Innovation); 

(3) Special Advisor - 30% SBIC, 30% SBIR/STTR, 40% 

Other (e.g. Innovation); 

(4) Business Operations Officer - 70% SBIC, 20% SBIR/ 

STTR, 10% Other (e.g. Innovation); 

(5) Program Analyst - 80% SBIC, 20% SBIR/STTR 

(6) Program Assistant - 80% SBIC, 20% SBIR/STTR 

Question 11 

What is the travel budget allocated to the Director of Program 

Development for minority outreach, women’s outreach, veteran’s 

outreach, and outreach to underserved and low income areas? 

Response: THe FY2014 travel budget for the Office of Innovation 

and Investment was $225,000. Of this amount, $11,000 was spent 

by the Program Development team in FY 2014 to do outreach for 

minority, women’s, veterans’ and underserved and low income 

areas. The Associate Administrator and the Deputy Administrator 

also engage in outreach to these communities at various meetings 

and conferences. Therefore, the amount spent on travel related to 

such outreach is actually greater than $11,000. 

Question 12 

Concerning the travel history and travel expenditures for the Associate Administrator for the Office of Investment and Innovation, 

please identify which travel expenditures were solely in support 

and oversight of the SBIC program and which were for the support 

of other programs. Please identify the other programs and the related amounts. 

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Response: The Associate Administrator promotes all of the programs managed by the Office Innovation and Investment at meetings and conferences. During FY 2014, $18,000 of the OII travel 

budget was spent for his travel discussing and supporting the SBIC, 

SBIR/STTR and Innovation programs. 

Question 13 

Regarding the travel history and travel expenditures for the Deputy Associate Administrator for the Office of Investment and Innovation, please identify which travel expenditures were solely in 

support and oversight of the SBIC program and which were for the 

support of other programs. Please identify the other programs and 

how much time and money was spent supporting them. 

Response: During FY 2014, $11,000 was spent for the Deputy 

Associate Administrator’s travel discussing and supporting the 

SBIC, SBIR/STTR and Innovation programs. There is no sub allocation in the travel budget by program or initiative. 

Question 14 

Please explain the SBA’s view as to why the licensing process 

has significantly slowed down and why the number of new funds 

entering the SBIC licensing process has significantly diminished. 

Response: The licensing process has not slowed down. The average processing time is 7 months which is generally consistent with 

the prior years’ time. The licensing process depends on many factors. One of the major driving factors, which is controlled by the applicant and not SBA, is the amount of time it takes the applicant 

to provide all of the final legal, partnerships, and other core documents to the SBA. Since we do not ‘‘stop the clock’’ while waiting 

for documentation from an applicant, that lag time is reflected in 

the estimated 7 months processing time. Thirty new SBICs were approved and licensed in FY 2014. This is also consistent with the 

prior year’s approvals. 

Question 15 

Given that the licensing Standard Operating Procedure was last 

updated in the 1980’s and this Committee was promised over a 

year ago that this would be updated, when will the licensing procedure be updated? 

Response: The new licensing SOP was updated and made effective on August 6, 2014. 

Question 16 

The SBA issued a proposed rule on SBIC investments in 2013 

and received only one comment letter from industry. Why is it taking so long to issue the final rule and when will the final rule be 

issued? 

Response: The final rule was published in the Federal Register 

on October 21, 2014. The 2013 proposed rule was related to expanding passive investment exceptions in the SBIC regulations. Though 

there was only one comment letter, it identified several areas where 

SBICs could benefit from further expansions for passive investment 

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ment structures in ways not intended by the proposed rule. SBA 

took time to carefully consider the expansions suggested by the commenter and also to consider any associated increase to program 

credit risk. 

—————————— 

Question for the Record 

Rep. Steve Chabot (OH-5) 

Question 1 

The Administration has previously been supportive of raising 

this limit. Does the Administration still support raising the family 

of funds limit? And will you work with me to help pass an increase? 

Response: The SBA is supportive of the family of funds increase 

legislation which would increase the amount of leverage by licensees 

under common control from $225 million to $350 million. The family of fund increase, with the increase in SBIC’s authority to $4 billion, will well position the Agency to ensure that high-growth small 

businesses across the country have access to the capital they need 

to build their companies, drive innovation and help grow the economy. 

Question for the Record 

Rep. Mick Mulvaney (SC-5) 

Question 1 

Last Congress, I sponsored the Subcontracting Transparency and 

Reliability Act, which was passed out of this Committee and included in the final version of the FY13 NDAA. This language made 

it easier to crack down on deceptive large businesses hiding behind 

small businesses, and simultaneously made it easier for small businesses to team with other small businesses to compete for federal 

contracts. Unfortunately, these changes have not been implemented. I understand that during a subcommittee hearing in July, 

we received testimony from small businesses about how the failure 

of SBA to act means that they are losing money and contracts. 

When is SBA going to act? 

Response: The proposed rule is currently in the interagency review stage of the rulemaking process and will be published for public comment in the near future. 

Æ 

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