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FULL COMMITTEE HEARING ON

INCREASING ACCESS TO CAPITAL

FOR OUR NATION’S SMALL BUSINESSES

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 1, 2007

Serial Number 110-4

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

JUANITA MILLENDER-McDONALD, 

California 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

JUANITA MILLENDER-McDONALD, 

California 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES 

Tasker, Janet, Small Business Administration ..................................................... 3

Schroeder, David G., Independent Community Bankers of America (ICBA) ..... 6

Bartram, David, National Association of Guaranteed Lenders (NAGGL) .......... 8

Landis, Mary, National Small Business Association (NSBA) .............................. 9

Schmitt, Michael, Metalworking Group, Inc. ........................................................ 12

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 29

Chabot, Hon. Steve .................................................................................................. 32

Tasker, Janet, Small Business Administration ..................................................... 33

Schroeder, David G., Independent Community Bankers of America .................. 38

Bartram, David, National Association of Guaranteed Lenders ........................... 47

Landis, Mary, National Small Business Association ............................................ 56

Schmitt, Michael, Metalworking Group, Inc. ........................................................ 65

Statements for the Record: 

America’s Community Bankers .............................................................................. 69

(V) 

(1)

FULL COMITTEE HEARING ON INCREASING 

ACCESS TO CAPITAL FOR OUR NATION’S 

SMALL BUSINESSES 

THURSDAY, MARCH 1, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Shuler, Bean, Cuellar, 

Altmire, Braley, Clarke, Sestak, Chabot, Fortenberry, Westmoreland, Gohmert, Fallin, and Buchanan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. The House Small Business Committee 

is called to order. Today, we will hold a hearing entitled, ‘‘Increasing Access to Capital For Our Nation’s Small Businesses,’’ and it 

is the intent to examine the challenges faced by entrepreneurs in 

securing affordable financing and propose solutions to meet those 

challenges. 

Let me start off by thanking everyone for being here today. Welcome to all the witnesses. 

While small businesses are the country’s economic drivers and 

job creators, accessing the capital they need to successfully grow a 

business is always challenging. As most of us know, many entrepreneurs just starting a firm cannot qualify for traditional bank 

loans and rely heavily on borrowed money from friends, family or 

credit cards. 

In the past, this is where the SBA has stepped in to help businesses in need of financing. There is no question that its loan programs have been a great source of capital for entrepreneurs, providing 40 percent of all long term financing and putting $25 billion 

into the economy annually. The partnership between small business lenders and the government has allowed entrepreneurs from 

all walks of life to secure affordable capital. 

For all of the good that these initiatives are doing they could 

clearly be doing more. SBA’s access to capital programs are a necessary tool for small firms; however, we need to find a way to decrease costs and increase access to these services especially in underserved areas. With veterans returning from Iraq, and the increasing number of women and minority entrepreneurs, affordable 

financing is more important now than ever. 

2

One thing we cannot forget is why these programs were created 

in the first place, to provide long-term capital to this nation’s small 

businesses. This was its original purpose and this is its true potential. For these initiatives to live up to their original intent, we need 

to make them affordable for small businesses. 

What has always set SBA’s loan programs apart from other financing means are the local ties to the community. Many are combined efforts, working with the SBA and private sector lenders in 

a public-private partnership to provide capital to small firms. In 

helping small business owners, they are also contributing to the 

economic development in their local communities. 

The SBA’s financing programs are essential for many entrepreneurs to get started or expand their businesses. for the programs to best serve small firms they must have the tools needed 

to provide affordable capital. With small firms creating three out 

of every four new jobs and comprising over half of the nation’s 

gross domestic product, it is a big problem when they do not have 

much needed funds. A small business owner should not be left with 

the difficult choice of either scaling back plans to expand their 

firms or risking the failure of their business. 

Today, we will be hearing from small businesses advocates who 

will tell you what entrepreneurs are experiencing. Also in today’s 

hearing, we will look at how the SBA loan programs can be improved to meet the needs of small businesses. This is an opportunity for us to listen and to take action so that we can create an 

environment that small firms can succeed in. 

It is crucial that our nation’s 26 million entrepreneurs have the 

ability to secure capital and to continue to spur economic development. We need to ensure SBA’s loan programs are the premier 

lending tool for entrepreneurs. Access to capital is access to opportunity and by putting capital back into the hands of our small businesses we give entrepreneurs a chance to compete in today’s marketplace. 

And now, I am very pleased to yield to the Ranking Minority, 

Mr. Chabot, for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you, Chairwoman Vela ́zquez, and I want to 

thank you for holding this hearing, and I want to thank all the witnesses for participating here today, particularly, Mike Schmitt, who 

is the President of the Metalworking Group for my district in Cincinnati, Ohio, in Corine Township, but we want to thank all of you 

for making the trip here today. 

In my view, today’s hearing on improving small businesses’ access to capital is one of the most important hearings this Committee will hold during this session of Congress. While many challenging issues confront small businesses—excessive litigation, burdensome regulation, affordable healthcare, high taxes, and contract 

bundling, just to name a few—none of these issues matter if small 

businessmen and women cannot borrow the seed money they need 

to start, and improve, their businesses. 

The 7(a) and the 504 lending programs, administered by the 

SBA, are critical for the success of many small businesses in this 

country. These programs allow entrepreneurs, who may not otherVerDate 0ct 09 2002 15:05 Jan 08, 2008 Jkt 033615 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33615.TXT LEANN
3

wise have the opportunity, the chance to start their own business 

or to make improvements in their businesses. 

Unfortunately, many small businesses have experienced difficulty in obtaining this much needed capital of late. After a 25 percent increase in the number of 7(a) borrowers in 2005, there was 

a 37 percent decline in borrowers during 2006 which some attribute to the rising fees paid by borrowers and lenders. 

Over the last few years, the 7(a) and 504 programs have been 

self-sustaining, operating at zero-subsidy and no appropriations, 

which eliminates the funding shortages the program experienced in 

the past. In my view it’s the most desirable way to fund the program since it is paid for by those who use it. That said, we must 

make sure the lending programs continue to be used by those who 

need them and I know that we plan to take a close look at the programs’ recent fee increases. 

This hearing is the first step toward reauthorizing the SBA and 

its programs—a process that hasn’t been completed, unfortunately, 

since 2002. It’s important that the SBA and its programs be thoroughly reviewed and evaluated to improve what’s working and to 

fix what isn’t. 

I look forward to working with Chairwoman Vela ́zquez to ensure 

that the SBA’s loan programs operate as efficiently and effectively 

as possible. 

And, once again, we want to thank all the panel members for 

coming out here today to testify before the Committee. 

I yield back the balance of my time. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Chabot. 

Chairwoman VELA ́ ZQUEZ. And now, I will call on Ms. Janet 

Tasker. She’s the Deputy Associate Administrator for Capital Access at the United States Small Business Administration. The Office of Capital Access manages the administration business loan 

programs, and performs lender oversight function at the SBA. 

Ms. Tasker, you will be recognized for five minutes. 

STATEMENT OF JANET TASKER, DEPUTY ASSOCIATE ADMINISTRATOR FOR CAPITAL ACCESS, U.S. SMALL BUSINESS ADMINISTRATION 

Ms. TASKER. Thank you, Chairwoman Vela ́zquez, Ranking Member Chabot, and Members of the Committee, for inviting me to testify about SBA’s reauthorization and the Fiscal Year 2008 budget 

for capital access. 

I am Janet Tasker, SBA’s Deputy Associate Administrator for 

Capital Access. The Office of Capital Access manages the guaranteed business loan programs, the investment programs, the surety 

bond program, international trade programs, and the lender oversight function at SBA. I am proud to discuss our Fiscal Year 2008 

budget, which reflects the President’s commitment to America’s 

small businesses and supports Administrator Preston’s new reform 

agenda to expand the Agency services and make our programs 

more customer driven, while ensuring fiscal restraint and responsible stewardship of taxpayer dollars. 

The Small Business Administration plays an important role in 

supporting America’s entrepreneurs and small business community. Each year, we are reaching more small businesses at an exVerDate 0ct 09 2002 15:05 Jan 08, 2008 Jkt 033615 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33615.TXT LEANN
4

traordinary rate, and doing so at no subsidy cost to the taxpayer. 

Fiscal year 2001, the loan program served about 48,000 small business borrowers. Fiscal Year 2006, this number had doubled to more 

than over 100,000, in both the 7(a) and 504 loan programs. 

The President’s Fiscal Year 2008 proposal will support a total of 

more than $28 billion in SBA financing for small businesses. The 

proposal requests authorizations of $17.5 billion for the 7(a) program, $7.5 billion for the 504 program, $3.0 billion for the SBIC 

debenture program, and $25 million for the Microloan program. 

The 7(a), 504, SBIC and Microloan program levels build on the 

continuing success that SBA has achieved in its loan programs over 

the past five years. in 2006, we served more small businesses than 

ever before. In our major loan programs, we increased the gross 

number of loan approvals by 99 percent, from 50,233 in Fiscal Year 

2002 to over 100,000 loans in Fiscal Year 2006. Likewise, 7(a) lending to minorities and women have increased dramatically, more 

than doubling since Fiscal Year 2002 in terms of the number of 

loans funded. These record numbers are possible in part because of 

the zero subsidy policy that was adopted at the beginning of Fiscal 

Year 2005. 

We are pleased that the 2008 budget proposes a number of fee 

reductions in our business lending programs, due to outstanding 

portfolio performance, enhanced lender oversight, and positive economic projections. The 7(a) program, SBA is seeking to lower the 

ongoing annual fee on lenders from 55 basis points in 2007 to 49.4 

basis points in 2008, resulting in a savings of $657 over the lifetime of an average loan of $145,000. 

The budget proposes elimination of the 50 basis point up-front 

fee on loans in the 504 CDC program, initially saving the borrower 

nearly $3,000 on the average loan of $582,000. 

SBA also requests a reduction in the ongoing annual fee for the 

SBIC Debenture program, from 90.6 basis points in 2007 to 71.7 

basis points in 2008, representing a savings of nearly $359,000 

over the life of an average guarantee. These fee adjustments are 

significant, and we are pleased that they will help the participants 

in our program access the capital necessary to establish and grow 

small businesses across the country. 

One specific area of the 7(a) program, we are requesting authority to charge a fee on pools of loans sold in the secondary market. 

This will enhance the ability of SBA to properly manage our programs by covering more of our expenses through fee authority, 

rather than taxpayer subsidy. We are not proposing to charge a fee 

at this time, but believe that the statutory authority to charge a 

fee in the future under certain circumstances, such as interest rate 

changes that affect the program, is appropriate. Borrowers would 

not be affected at all, as the fee would be paid by investors in secondary market certificates. 

Another key priority of SBA’s 2008 budget will support our new 

Administrator’s commitment to maximizing the effectiveness of 

Agency resources by building on the improvements of the past several years in centralized lending functions. By centralizing our 7(a) 

loan liquidations, we saved taxpayers approximately $18 million in 

Fiscal Year 2006, even while our portfolio was growing markedly. 

5

Administrator Preston is committed to better monitoring and 

management of performance metrics through centralization, ensuring consistent application of SBA’s policies and procedures. While 

SBA has successfully improved customer service, efficiency and accountability, with reduced staffing levels in recent years, this year’s 

budget requests a staffing increase of 28 new FTEs to support the 

Agency’s oversight and portfolio management functions. Efficient 

infrastructure to manage our risks is more important now than 

ever before, due to tremendous growth in our loan program, and we 

believe that new FTEs are necessary to strengthen and support 

these critical functions. 

We are also pursuing several measures to minimize the potential 

for fraud in our loan programs, including the leveraging of data 

analysis techniques to identify portfolio trends that may be indicators of fraud, as well as meeting with fraud experts in the public 

and private sectors. We continue to refer evidence of potential 

fraud to the Inspector General for investigation in a timely manner, and have incorporated the referral process into our SOP for 

lender referrals. 

Administrator Preston placed a high priority on better targeting 

SBA’s programs and services to under-served markets, when he 

was sworn in as head of SBA in July, 2006. We have made notable 

progress in this area. 

In October, the Agency launched the New Markets Tax Credit 

Pilot Loan Program to provide capital to small businesses and economically distressed urban and rural areas, or ‘‘New Markets.’’ 

This pilot program allows certain Community Development Entities to purchase up to 90 percent of the gross loan amount of SBA 

Express or Community Express 7(a) loans to ‘‘qualified’’ businesses 

in low-income communities. 

Additionally, the Fiscal year 2008 budget request includes a proposal to expand the potential reach of the Microloan program to 

under-served communities, by moving the program to a zero subsidy. In past years, SBA has proposed eliminating the Microloan 

program because under current structure it is very costly to the 

taxpayer, relative to the amount of capital it lends. 

However, SBA will be able to offer loans to virtually any eligible 

intermediary by changing the rate at which the intermediaries borrow from 3.77 percent, which is below the Government’s cost of 

funds, to 5.99 percent, which is 1 percent above the Government’s 

cost. Intermediaries will continue to receive a better than market 

rate of interest, and businesses in under-served markets will have 

expanded reach through non-bank microlenders. 

The Agency is also seeking to vastly expand the number of outlets providing training to Microlenders by utilizing our technical 

assistance resource partners, including the Small Business Development Centers and Women’s Business Centers located throughout 

the country. By shifting Microloan technical assistance to our extensive network of existing resource partners, SBA has the potential of tripling the potential outlets for microenterprise lending and 

will save almost $13 million in Fiscal Year 2008. 

In conclusion, we are very proud of the growth in the business 

lending programs, and our efforts to ensure that this growth is 

managed in a reasonable and prudent manner. 

6

Today, SBA is helping more small businesses meet their financing needs than ever before, especially in our Nation’s under-served 

markets. 

Thank you for your time today, and I would be happy to answer 

any questions. 

[The prepared statement of Ms. Tasker may be found in the Appendix, on page 33] 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Tasker. 

And now our next witness is Mr. David Schroeder. he is the 

President of the American Enterprise Bank in Buffalo Grove, Illinois. He is here on behalf of the Independent Community Bankers 

of America, which represents nearly 5,000 community-based financial institutions nationwide. 

Mr. Schroeder, you will be recognized for five minutes. 

STATEMENT OF DAVID G. SCHROEDER, INDEPENDENT 

COMMUNITY BANKERS OF AMERICA (ICBA) 

Mr. SCHROEDER. Thank you very much, Chairwoman, Ranking 

Member Chabot, and Members of the Committee. My name is 

David Schroeder. I am the President of American Enterprise Bank, 

a locally-owned, $325 million community bank in Buffalo Grove, Illinois. I’m pleased to appear today on behalf of the Independent 

Community Bankers of America and its nearly 5,000 members nationwide. The community banking industry thanks you, Chairwoman Vela ́zquez, for holding this important hearing. I know this 

Committee has a history of working well and on a bipartisan basis 

to focus on the needs of small businesses. 

Community banks serve a critical role in financing small businesses. In Illinois alone, there are 549 community banks that have 

made a total of 194,000 small business loans or $21 billion in small 

business lending. Community-based banks forms the building 

blocks of our Nation’s communities, providing the needed small 

business capital and credit to all geographic regions of the country, 

both large and small. 

First of all, I want to make it very clear that the SBA Guaranteed Loan Programs are unique and extremely valuable, in providing needed long-term capital to small business borrowers. The 

SBA loan programs truly represent a success story of how the Federal Government, working with private sector lenders, can fund 

small businesses that otherwise would not have access to capital. 

Community lenders, like American Enterprise Bank, are proud to 

work with the SBA in helping supply needed long-term capital to 

small businesses across the Nation. Last year, American Enterprise 

Bank facilitated $25 million in 7(a) loans, and $28 million in 504 

loans, in our local communities. American Enterprise recently 

earned the distinction of being named ‘‘Lender of the Year‘ by 

SomerCor 504, a Chicago-based Certified development Corporation. 

With small business development, one of the fastest-growing segments of our changing economy, the demand for small business 

capital will only increase. However, ICBA believes recent changes 

to the budget and loan programs are causing the SBA to fall short 

of its ability to facilitate affordable small business capital. Recent 

budget cuts, sharp fee increases on both lenders and borrowers, 

7

and the elimination of the successful ‘‘LowDoc’’ program have undermined the full potential of SBA lending programs. 

We have witnesses a disturbing decline in the number of community lenders actively participating in SBA loan programs. While the 

number of SBA loans has increased, the number of participating 

lenders, and the size of loans, continues to fall. The shrinkage of 

average loan size has left many small businesses with less capital 

to grow their businesses and create jobs. 

Given the growing demand for small business capital, one would 

expect the number of lenders actively participating in lending—

SBA lending programs to grow. Unfortunately, this is not the case. 

In recent years, many community banks have found it much 

harder, and not easier, to provide needed capital to small businesses through the SBA loan programs. Notably, the number of 

lenders that have made at least one SBA 7(a) loan has dropped almost in half since 2001. This is a very disturbing trend. 

The majority of our Nation’s commercial banks are, indeed, community banks. However, today, just the top ten SBA lending banks 

do nearly 60 percent of all SBA loans. SBA lending should not be 

allowed to morph into a one-size-fits-all, cookie-cutter program that 

works only for a limited number of big bank lenders in limited 

small business needs. The SBA loan programs should be allowed 

to work well for lenders making ten loans, as well as 10,000 loans. 

ICBA supports the SBA loan programs, and respectively proposes 

several recommendations that will address problem areas. Our recommendations include: 

1. Restoring a reasonable 7(a) loan program appropriation to 

allow the sharp increases on lenders and borrowers to be scaled 

back. 

2. Boosting the SBA budget, which has been cut nearly in half 

in the past six years. 

3. Reinstating the successful ‘‘LowDoc’’ program with an 85 per- cent guarantee for loans up to $250,000. 

4. Reinstating the availability of ‘‘piggyback’’ financing to help 

serve businesses with larger borrowing needs. 

5. Allowing $19 billion in 7(a) lending authority and $9 billion in 

504 lending authority, up from last year’s budget. 

6. Applying additional SBA budget resources to better staff and 

support regional SBA offices. 

The ICBA believes the growing demand for small business loans 

only validates the importance of ensuring a more robust Small 

Business Administration. Financing more small businesses in turn 

creates more jobs, and provides revenue back to the Federal Government. 

In conclusion, the ICBA urges the SBA programs be allowed to 

work for as many interested lenders as possible, in many geographic areas, to best meet the needs of small business borrowers. 

Providing needed capital resources to small business through broad 

community bank participation in SBA lending will help strengthen 

economic growth and foster greater job creation. 

ICBA sincerely appreciates this opportunity to testify today. 

Thank you very much. 

[The prepared statement of Mr. Schroeder may be found in the 

Appendix, on page 38] 

8

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Schroeder. 

Our next witness is Mr. David Bartram. he is the President of 

the SBA Division of U.S. Bank, a large banking institution that operates SBA lending centers in 24 states. Mr. Bartram is Chair of 

the National Association of Government Guaranteed Lenders, a 

trade association of approximately 700 lenders participating in the 

Small Business Administration’s loan programs. 

Welcome. 

STATEMENT OF DAVID BARTRAM, CHAIR, NATIONAL ASSOCIATION OF GOVERNMENT GUARANTEED LENDERS (NAGGL) 

Mr. BARTRAM. Thank you very much, Chairwoman Vela ́zquez, 

Ranking Member Chabot, and Members of the Small Business 

Committee. My name is David Bartram, and I am the President of 

the SBA Division of U.S. Bank. Our division operates SBA lending 

centers in 24 states, and we are one the largest SBA lending partners. Last year, U.S. Bank provided $542 million in long-term SBA 

loans to over 4,700 firms nationwide. U.S. bank is a committed 

small business and has an ongoing, or an outstanding, SBA portfolio of approximately $1.6 billion. 

Prior to joining U.S. Bank, I was the Chief Operating Officer of 

Bank of Commerce, where I worked for 15 years. This bank was 

a small community bank that specialized in SBA and 7(a) lending 

and 504 lending. 

I’m also currently serving as the Chairman of the Board for the 

National Association of Government Guaranteed Lenders. This 

trade association has approximately $700 lenders, participating in 

the loan programs that comprise over 80 percent of the loans that 

are made through the programs. Our members include regional 

banks, non-bank lenders, large nationwide banks, certified development companies, credit unions, and small community banks, which 

comprise the largest membership. 

We appreciate the opportunity to testify today on the effectiveness of the SBA loan programs. The SBA 7(a) and 504 programs 

fill a significant gap for small businesses that need access to longterm capital. In fact, 40 percent of all long-term capital provided 

to small business is done through the SBA loan programs. This 

means that SBA is the single largest producer of long-term capital 

to small businesses. While it is true that commercial banks make 

many small business loans, these conventional loans typically have 

maturities of three years or less, since short-term deposits fund 

commercial banks. Therefore, by bridging the credit gap, the SBA 

fills a critical need for small businesses, especially for start-up and 

early stage companies. 

While the program has worked well, we believe they can be improved. NAGGL has proposed 7(a) program changes that we judge 

will increase access to capital, reduce costs to many small business 

borrowers, and improve the economics to retain and grow the number of lenders in the program. Our suggestions will be delivered to 

you next week, in the form of a legislative proposal, but they will 

include the following: 

1. Increase the maximum 7(a) loan size to $3 million with a maximum guarantee of $2.25 million. Since 2002, the volume of loans 

of $250,000 or more has been generally flat. These larger loans pay 

9

disproportionately higher fees, thus, subsidizing the costs of smaller loans. This is especially true for loans with guarantee portions 

over $1 million, since this fee is by far the largest of all fees 

charged to 7(a) borrowers. A request to increase the maximum loan 

size of $3 million is the most requested program change by our 700 

members, particularly, small banks. 

2. Allow the use of alternative size standard, currently sued in 

the 504 and the SBA program. This change will remove one more 

hurdle for lenders’ participation in the program. 

3. Allow 7(a) and 504 combination loan packages where a borrower could utilize the maximum guarantee amounts available 

under each program. 

4. Allow the use of a rate index rather than ‘‘the lowest prime 

rate as published in the Wall Street Journal.’’ This use of a longerterm rate index could lead to lower cost of borrowings for small 

businesses. 

5. Allow the use of weighted average coupon loan pools for secondary market sales. This will allow the secondary market to become even more efficient. 

6. Extend the prepayment penalties for loans with maturities of 

15 years or longer to five years, as opposed to the current three 

year. The five year prepayment penalty would then be on a sliding 

scale of 5 percent in year one, to 1 percent in year five. The current 

prepayment fees are extremely high, and this proposed change 

could reduce fees for future SBA borrowers. 

We believe these changes will increase the access to capital for 

many small businesses, and will also decrease the cost of the loan 

programs. 

Many of our proposals should have a positive subsidy impact, 

meaning fees to the program could be reduced in the future. The 

SBA, under the new leadership of Administrator Preston, has appeared receptive to these suggestions. 

Chairman Vela ́zquez and Ranking Member Chabot, this concludes my comments, and thank you very much for the opportunity 

to testify today, and I’d certainly be glad to answer any questions. 

[The prepared statement of Mr. Bartram may be found in the 

Appendix, on page 47] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Bartram. 

Our next witness is Ms. Marilyn Landis. She’s the Owner and 

President of Basic Business Concepts, Inc., a consulting and financial management company in Pittsburgh, Pennsylvania. Ms. Landis 

is the First Vice Chair of the National Small Business Association, 

a volunteer-led association that advocates on behalf of small businesses. 

Welcome. 

STATEMENT OF MARILYN LANDIS, NATIONAL SMALL 

BUSINESS ASSOCIATION (NSBA), SMALL BUSINESS OWNER 

Ms. LANDIS. Thank you. 

Good morning. My name is Marilyn Landis, and I’m please to be 

here on behalf of the National Small Business Association. I would 

first like to thank Chairwoman Vela ́zquez for holding this very important hearing, and for being such a strong and outspoken advocate for increased access to capital opportunities for U.S. small 

10

businesses. I also would like to thank Ranking Member Chabot for 

his long-time support for entrepreneurs. The entrepreneurs of the 

National Small Business Association look forward to working with 

you on the House Small Business Committee. 

I am proud to serve as the first Vice Chair for NSBA as we celebrate our 70th year of small business advocacy, and continue our 

longstanding tradition of working in a non-partisan manner to promote pro-small-business policies. In addition to my leadership role 

within NSBA, I am the owner of Basic business Concepts, a consulting and financial management company serving small businesses primarily in Pennsylvania and Ohio. 

Prior to starting Basic Business Concepts, I spent 30 years working for and with commercial lenders, banks and small businesses 

throughout western Pennsylvania. I worked for three of the largest 

SBA lenders in the country—marketing, originating and underwriting SBA loans—and have continued working with my clients 

on securing SBA loans as well as myriad other sources of capital. 

Small-business owners face many obstacles in trying to garner capital. Many small and start-up businesses lack the assets necessary 

for traditional bank loans. Smaller loans are generally less profitable for banks and typically have a higher default rate. The increased usage of personal credit ratings for business owners further 

exacerbates the problem. Additionally, ongoing bank consolidation 

has resulted in fewer community banks, fewer character-based 

loans, and more difficulty for small-business owners. 

One of the biggest barriers to small business financing is debt secured by equity and fixed assets. Many small business owners do 

not have the kind of equity required by banks to acquire a sizeable 

loan. This gap in debt equity financing primarily hinders both 

start-up businesses and growing businesses. An entrepreneur wishing to open any business would face significant barriers to financing, as home ownership [if the entrepreneur owns a home] rarely 

meets the equity requirements for receiving a larger commercial 

loan. Small business owners seeking to expand his or her business, 

or hire additional employees, faces the same equity challenges. 

Bank regulators require business borrowers to have either equity 

in hard assets or historic cash flow to support their loan request. 

Rapidly growing businesses, like mine, that are not traditional 

brick and mortar, have neither. We are forced to use bank credit 

lines which, if not security with equity in a home, are increasingly 

credit card accounts. As such, these loans are subject to credit card 

regulations which permit significantly higher and more volatile 

rates and payment structures. Rapidly growing service and technology companies do not want to rely on credit card debt—they are 

forced to. 

Additionally, too many banks rely solely on the personal credit 

score of the business owner, and neglect to evaluate the owner’s 

business experience or the long-term viability of the business. Individuals with high credit scores and/or equity in a home can secure 

a loan, whereas an experienced entrepreneur may not. Lower credit 

scores may only reflect the presence of both personal and business 

debt on the business owner’s credit report, not a poor credit history. We firmly believe that in time the unintended consequences 

of the over-reliance on credit scoring, and lack of emphasis on the 

11

actual viability of the business, will increase small business defaults by over-extending credit to the inexperienced and denying 

credit to viable functioning businesses. 

NSBA also strongly supports efforts to allow small businesses to 

earn interest on their checking accounts, and SBA thanks Chairwoman Vela ́zquez for introducing the Business Checking Fairness 

Act, and urges the Full Committee to support this important piece 

of legislation. 

Banking practices that restricted access to capital were a key 

catalyst in the creation of the SBA’s flagship 7(a) loan program. 

The goal under the generally accepted premise that small business 

growth is a good thing was to encourage greater lending to smaller, 

potentially riskier clients. As you can see, however, imperfections 

within the market still exist, and SBA loan programs are as important now as ever. 

As everyone in this room can attest, the 7(a) loan program has 

had a bumpy ride over the past five years. The program has faced 

loan caps, a complete shutdown, and a zero budget. The 7(a) loan 

program is now running on a zero subsidy, which requires no appropriations but has led to higher increased fees on lenders and 

borrowers. 

While some have argued that the zero subsidy and lack of appropriations has led to stability in the program, we would argue that 

stability and funding the 7(a) program are not mutually exclusive. 

Hindering the 7(a) program and placing the financial burden on 

small business owners, because Congress has been unable to enact 

appropriation measures, is simply unfair. 

When the program first went to zero subsidy rate in 2005, lenders and borrowers were hit twice by increased fees. While the number of loans being made has steadily increased, both loan volume 

and loan size has decreased since the new subsidy rate went into 

effect. 

Perhaps, the most worrisome numbers, however, are the number 

of banks involved in the 7(a) program. Higher fees are not only 

pushing business borrowers toward credit card reliance, they are 

driving banks out of the program. The number of lenders registered 

that actually made at least one loan between 2001 and 2005 has 

decreased dramatically, almost 50 percent. SBA Administrator 

Preston has stated that in keeping with the Agency’s efforts to run 

a more efficient agency, the goal is to fold the Microloan program 

in with the 7(a) loan program and have small business development centers assume the technical assistance responsibilities currently provided through the Microloan program. We do not believe 

that this is in the best interest of the Microloan program or the aspiring entrepreneurs it strives to assist. 

In conclusion, Congress must recognize that the majority of small 

businesses in today’s economy are not fixed asset intensive, and 

should have the lead in ensuring that traditional financing practices do not restrict small business growth. NSBA urges Congress 

to examine the benefits of reforming the current limitations placed 

on banks in lending to small businesses, and fully supporting and 

funding existing SBA loan programs. 

I thank you for your time, and welcome any questions you may 

have. 

12

[The prepared statement of Ms. Landis may be found in the Appendix, on page 56] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Chabot for the purpose of introducing his 

witness. 

Mr. CHABOT. Thank you, Madam Chair. 

I’d like to welcome Mike Schmitt from my district in Cincinnati, 

Ohio, where he is President of the Metalworking Group, which is 

in Corine Township. Mr. Schmitt’s business, Metalworking Group, 

employs 70 people, and they do sheet metal fabrication, robotic 

welding, machining and other things. 

He used the 504 loan to help finance the business which is now generating about $9 million in annual revenues. He’s a graduate of 

the University of Notre Dame, with a B.S. in Mechanical Engineering, and he received his MBA from Xavier University, which is also 

in Cincinnati. 

He’s a member of the Tristate Tooling and Machining Association, and was President of that organization from 2001 to 2003, 

and we would all like to welcome you here this morning. 

Mr. Schmitt, we look forward to your comments. 

STATEMENT OF MICHAEL SCHMITT, PRESIDENT, 

METALWORKING GROUP INC., SMALL BUSINESS OWNER 

Mr. SCHMITT. Thank you. Good morning. 

I’d like to thank Chairperson Vela ́zquez, Ranking Minority Member Chabot, and the entire Committee, for giving me the opportunity to provide remarks concerning the benefits small businesses 

receive using the SBA’s 504 program. 

Moreover, I would like to personally thank the leadership in the 

Committee for steadfastly championing small business issues, including those of the 504 program, and for introducing legislation 

that will improve the 504 loan program for future small business 

borrowers. 

I purchased the Metalworking Group in 2000, after having 

worked there for ten years. A t that time, the company had approximately 70 employees with $9 million in annual revenues. 

Our primary business is contract manufacturing focusing on 

sheet metal fabrication, robotic welding, machining, painting, and 

metal stamping. Our competitive advantage is the ability to offer 

our customers the most diverse range of manufacturing solutions 

in the Midwest. We serve many industries including medical, machine tools, consumer products, and defense. 

In 2004, we needed to invest in the company to continue growth. 

The real estate lease under which we were operating was a burden 

to the cash flow and investment opportunities for the Metalworking 

Group. We needed to purchase capital equipment in order to continue our strategy of automating and offering our customers a 

high-tech solution to their manufacturing needs. 

To maximize our potential, we contacted Horizon Development 

Corporation to explore the 504(a) SBA loan program. The Economic 

Development Office of our locality, with whom we initiated a relationship regarding a tax abatement program in 1999, recommended 

Horizon CDC. The 504 loan program was the most attractive way 

for Metalworking Group to free up resources and allow us to invest 

13

in our future. We were able to save significant dollars, which could 

then be used towards the purchase of new equipment such as laser 

cutters, robotic welders, and CNC machining centers. 

The assistance Horizon provided in obtaining the 504(a) funding 

was professional and invaluable. Although the 504(a) was not the 

only financing in which we participated, it was the catalyst for all 

future investments because it allowed us to save valuable cash reserves. 

The 504(a) loan is critical to companies like Metalworking for a 

number of reasons. First of all, the loan structure requires the participating banks to offer favorable terms in the loan package, such 

as the length of amortization. For planning purposes, it is especially helpful to have a long and uniform payout schedule. Secondly, the program offers a better interest rate due to the participation of the SBA. 

Metalworking Group was able to put less money down for the 

transaction. This saved us at least $130,000 of cash reserves. Another benefit to the borrowers is that the loan structure, at 20 

years fixed interest, required the participating banks to conform to 

the same structure. Without that, we would have had a significant 

interest rate risk in as little as five years. 

With the favorable financing we were able to obtain through our 

504 loan, Metalworking Group has experienced some success. 

Today, we currently have 150 employees and we have doubled our 

annual revenues to nearly $18 million. 

Horizon is an integral part in bringing these loans to fruition. 

They have the incentive to help businesses and educate clients on 

the availability of these programs. Banks are certainly willing to 

participate in these loans, but I feel they would prefer conventional 

lending in order to control the terms and rates. 

Horizon provided important and specific professional help 

throughout the loan process. Without Horizon, we would have been 

hard pressed to obtain these loans. Since these programs are not 

our expertise, the services Horizon offered were indispensable. Negotiating the legalities and conditions with the banks would have 

been nearly insurmountable without their help. Without this assistance, we would not have access to capital available to larger 

companies. 

Horizon CDC was able to provide the 504 loan at an extraordinarily low cost to our company. The beneficiaries of this low cost 

are not only our company, but include our many new employees, 

other companies with whom we conduct business, and as a result, 

the local area and community as a whole. 

I also want to stress that Horizon CDC played a critical role in 

balancing the interests of our company, the SBA and the bank. Horizon provided assistance at every level of the project—offering advice, support and expertise critical to our success. Horizon has also 

helped other small businesses obtain 504 financing; they have approved over $229 million in financing to over 900 small businesses 

that have generated over 8,000 jobs since they were formed in 

1982. 

In short, having Horizon as our advocate in the project, having 

them provide optimally structured 504 financing at the lowest posVerDate 0ct 09 2002 15:05 Jan 08, 2008 Jkt 033615 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33615.TXT LEANN
14

sible cost and in a professional and expeditious manner, was critical to maximizing the benefit to our company and our community. 

In conclusion, I understand that through 504, SBA provides the 

largest and most successful small business economic development 

financing program the Federal Government has today. I hope I 

have shed some light on its real value to small businesses and to 

the American economy. Its significance reaches far beyond the statistics of numbers and dollars of lending done each yea; the jobs 

and community development alone helps to create and the business 

growth it fosters, the benefits to our employees and their families, 

and, ultimately, our community, are all a result of the 504 loan 

program. from a small business perspective, 504 and CDCs are a 

critical component in securing reasonable financing for growing 

small businesses in America. I know that without the staff at Horizon CDC, we would not be as successful as we are today—we would 

not have created as many new jobs or accomplished as much for 

our company or our community. 

Many people are fond of saying that ‘‘small business is the engine that drives the United States economy,’’ an idea in which I 

deeply believe. With your continued support and hopefully legislation for the enhancement of the 504 program, this will sure continue to be the case. 

Again, I thank the Leadership, Committee Members and Committee staff for its tireless work in support of SBA and the 504 program. I am available for any questions you might have. Thank you. 

[The prepared statement of Mr. Schmitt may be found in the Appendix, on page 65] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Schmitt. 

Ms. Tasker, I listened to your testimony quite carefully, and, basically, you talked to us and gave an overview of the same information that Administrator Steven Preston gave to us when he appeared before this Committee. And, I was struck by the fact that 

in all of your testimony there is not a single recommendation to improve the SBA’s business finance program. 

Clearly, small businesses have a lot of needs out there, as you 

listened to the rest of the testimony provided by the witnesses 

here. The Agency ranks among the lowest on consumer satisfaction, so I believe that there is room for improvement. 

So given that, why haven’t you come up today with any recommendations as to how can we improve the business loan programs? 

Ms. TASKER. Congresswoman Vela ́zquez, we are continually 

working to improve our business loan programs, both in terms of 

the way we offer our services. It’s at the cornerstone of Administrator Preston’s reform. He wants us to be customer centric, transparent, and outcome focused, and all of our efforts are really designed to make improvements in those areas. 

Chairwoman VELA ́ ZQUEZ. Can you tell me how you are going address the fact that lenders participation is down, loan volume down 

3 percent for the first time in four years, fees are at an all-time 

high, consumer satisfaction was ranked among the lowest in the 

Federal Government? 

Ms. TASKER. Let me just speak to a couple of those points. In 

terms of less lenders being involved in our programs, if you are reVerDate 0ct 09 2002 15:05 Jan 08, 2008 Jkt 033615 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33615.TXT LEANN
15

lying on some of the data that we provided you, the way we count 

the number of lenders in our programs we’ve adjusted. Before we 

counted all of our — all of the various branches, so one large national lender might be counted 35 times, if they had a presence in 

35 different states. We’ve tried to consolidate it so we can understand exactly who our lenders are, and so that is part of the result 

of it. 

Part of it is the result of just the general consolidation in banking itself. So, we believe that we are reaching more small businesses every day and every year, so we don’t really see it as an 

issue, in terms of the banks’ participation. 

That said, we do significant outreach through our district offices 

to bring in, particularly, the smaller local community banks, and 

we do a lot of work in terms of training them and bringing them 

up to speed. 

Chairwoman VELA ́ ZQUEZ. Well, maybe it might not be the outreach the answer, but maybe it might be a recommendation as to 

how to address legislatively, maybe? 

My next question to you, I want to ask you about one proposal 

to increase the maximum limit on the 7(a) loans beyond the current $2 million limit. Based upon trends that the Agency has observed in the 7(a) program, do you believe there is adequate demand from borrowers to justify the increasing of the maximum 

loan size beyond the current limit? 

Ms. TASKER. Congresswoman Vela ́zquez, we haven’t evaluated 

the demand for that since we don’t offer loans in that area. We certainly know that lenders are interested in increasing their loan size 

to $3 million. 

Chairwoman VELA ́ ZQUEZ. Do you think that the proposal is a 

good idea? 

Ms. TASKER. We would have to evaluate it, we don’t have enough 

experience with that. Our real issue would be around, one, making 

sure we are serving—truly serving small businesses, and, two, 

what the impact on the subsidy rate would be. 

Chairwoman VELA ́ ZQUEZ. Well, we have been talking about this 

for the last two years, and you still have time to evaluate it? 

Ms. TASKER. we haven’t made any loans in that range, so we 

can’t — we don’t know what the performance would be, Congresswoman. 

Chairwoman VELA ́ ZQUEZ. Mr. Bartram, most of your proposals 

seem to be on initiatives that are focused on mostly high-volume 

7(a) lenders. What in your proposal will help the small lender? 

Mr. BARTRAM. Well, if you go to the first proposal, and small 

banks would certainly benefit, I believe, more from this, and is 

being asked by our small bank membership for this, is the larger 

loan size. 

A small bank, small community bank, has issues with legal lending limits, has liquidity issues, and being able to have a larger SBA 

7(a) loan with a guarantee that that small lender could sell into the 

secondary market, would, basically, allow them to help a larger 

customer need and would also allow them to get the liquidity back 

through the sale in a secondary market. 

Our second proposal, the alternative size standard, presently 

there’s about 38 different size standards that a lender has to go 

16

through to calculate if a business is deemed to be small. The 504 

program and the SBIC program have a net worth and a net profit 

test. This would be much simpler for all lenders to use. It will also 

allow those customers that get a 504 loan may now be eligible to 

get a 7(a) loan. 

Chairwoman VELA ́ ZQUEZ. Mr. Schroeder, you heard NAGGL’s 

legislative proposal, do you think that it is something that you, as 

the small banker, can use? 

Mr. SCHROEDER. Quite honestly, Congresswoman, we are interested in having an SBA program that has a wide variety of programs that can meet a number of different small business needs. 

There is definitely not a one-size-fits-all program that is going to 

satisfy, not only all of the different bankers’ needs, but all of the 

different lender needs. 

So, the greatest variety of programs is something that we would 

be looking for, not only for our bank, but also for our association. 

Chairwoman VELA ́ ZQUEZ. Well, do you think that the legislative 

proposal is a one-size-fits-all? 

Mr. SCHROEDER. I believe that the SBA is gravitating towards a 

one-size-fits-all program. So, yes. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Bartram, in your view, what is the role for the small nonPLP lender, who makes only a handful of loans in the program? 

Would you support initiatives that encourage small lender participation, even if it has a positive impact on the subsidy rate? 

Mr. BARTRAM. Well, presently, the SBA is consolidating out of 

the district offices into a one centralized processing center for nonPLP loans. Basically, it gives the benefits that the LowDoc program 

gave prior, and, in fact, the center is in Hazard, kentucky, where 

the LowDoc center was. 

So, the smaller lender will have a more consistent processing 

time, will be able to get much more expertise to guide them 

through that process, so I think that the smaller lender that does 

five loans or less will be served under this new process. 

Chairwoman VELA ́ ZQUEZ. Sir, do you think that centralizing is a 

good idea? 

Mr. SCHROEDER. It’s been our experience in the lending community that the further away the decision makers are from the community and from the actual situations, the more difficult it is to get 

a quick decision and a decision that’s most appropriate for the 

bank, as well as the borrower. 

I would, as a result, caution and have some concerns with the 

consolidation of the offices in small areas, or, I’m sorry, into larger 

offices in, you know, just a single geographic region of the country. 

It’s been our experience that having a regional office is positive, 

because you have someone there that knows the area, knows your 

community, and you can have a greater, to me, have greater impact 

in getting a positive decision. 

Chairwoman VELA ́ ZQUEZ. Mr. Schroeder, we have heard the arguments that higher loans fees have actually benefitted the program, and that this is reflected in the 7(a) program’s increased 

lending volume since moving to this zero subsidy rate. My concern, 

however, is that by focusing on volume we are missing the true intent of the program, to help those who cannot otherwise secure capVerDate 0ct 09 2002 15:05 Jan 08, 2008 Jkt 033615 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33615.TXT LEANN
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ital. With higher fees, do you think that some of the deserving borrowers are being pushed from the program in favor or borrowers 

that the program was not originally intended to serve? 

Mr. SCHROEDER. Definitely. I think it is clear and irrefutable 

that the number of SBA loans are up, the number of dollars are 

up. It’s also clear, however, that the number of lenders are down, 

and community banks are, in terms of active participants, in other 

words, one SBA loan or greater, is half of what it was several years 

ago. And, as I mentioned in my testimony, this is a very disturbing 

trend for us. 

I think two things happen at this—and have happened as a result of the fee increases. First, on the lender side, second on the 

borrower side. On the borrower side, I think what you said is correct, I think that the lenders—sorry, the borrowers that are at the 

margin just, you know, perhaps, you know, just qualifying for an 

SBA loan, are the ones that are not going to be granted those 

loans, or be able to afford those loans because of the higher fees. 

I think also, looking on the bank side, when you have higher 

lender fees some of the banks that do not make a number of SBA 

loans, that haven’t made a real solid commitment to the program, 

but may want to do one, two, five, ten a year, these lenders, as a 

result of the higher fees, are dropping out of the program, and I 

think the numbers speak for themselves. 

So, I think it’s really a two-fold impact on the borrower, as well 

as on the banks. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. schroeder, and I recognize the Ranking Minority. 

Mr. CHABOT. Thank you, Chair. 

Let me start out with Mr. Schmitt, if I can. Mr. Schmitt, would 

you discuss, I know a lot of small business nowadays struggle with 

being competitive with some of our overseas competitors, and 

there’s an emphasis on modernizing, and actually being able to 

compete, or, perhaps, the pay rates are lower, perhaps, in other 

countries. Could you tell us, how did this enter into your ability to 

be more competitive and modernize your business, how did that 

play into that? 

Mr. SCHMITT. That’s a great issue, something we face every day. 

You know, we lose parts to overseas competitors on a regular basis, 

but they tend to be lower-tech parts and higher volume. And, the 

way for small manufacturers to stay competitive, and to increase 

their business, is to do higher precision work, to invest in technology, to automate so, you know, you are hiring higher-skilled 

people, but less of them, but with the ability to do, you know, computer-controlled machinery. 

So, one of the things that we needed to do when we decided to 

try to grow and try to invest in the company, is to free up capital 

and money so we could buy that type of equipment, in order to 

compete, you know, in order to be more efficient and be able to 

produce more parts per hour, versus somebody who is not doing it 

as competitively. 

So, that’s what drove, you know, our decision to use a 504 program and to use lower-cost capital, and to free up money to invest 

in automation, because you have to, I mean, because, you know, we 

are fighting that every day. 

18

Mr. CHABOT. So, having access to the 504 loan was important 

and enabled you, among other things, to increase your employees 

from 70 up to 115, was it? 

Mr. SCHMITT. One hundred fifty. 

Mr. CHABOT. One hundred fifty employees. 

Mr. SCHMITT. Yes, absolutely. You know, we saved substantial 

money on the down payment, you know, in the loan. We saved—

not only do we have a good interest rate, but our lease payment 

was so much higher than our mortgage payment. We saved a tremendous amount of money for that, which we rolled over into 

equipment purchases for some of the high-tech laser cutting equipment from Cincian, Incorporated, also, you know, right in Cincinnati. 

Mr. CHABOT. Thank you very much. 

Ms. Tasker, let me move to you next, if I can. 

Several of the witnesses on the panel stated that the move to 

zero subsidy is causing some problems, most notably higher costs 

for lenders and borrowers, and fewer lenders participating in the 

program. 

I’m sure that you’ve heard these concerns before. Could you explain in greater detail as to why moving to a zero subsidy system 

is a positive move for the future of the SBA? 

Ms. TASKER. Certainly, Congressman. 

We believe the zero subsidy definitely provides stability to the 

market, and allows us to have an uninterrupted stream of capital 

available for loans to small businesses. 

When we are subject to appropriations, and appropriations are, 

you know, held up over time for a variety of reasons, we are faced 

frequently with having to place caps on the program, or even shutting the program down if we don’t have appropriations to allow us 

to reach the level of lending that there’s demand for in the market. 

With regard to fees, I am somewhat confused, because from our 

perspective, and the numbers that we look at, the fees are really, 

basically, at the same level that they were ten years ago. There 

was a period during 2003 and 2004 where the fees were reduced 

by Congress, but if you take that anomaly out we are really at a 

very stable level in terms of fees, and, in fact, our proposal for Fiscal Year ’08 is to reduce the ongoing fee. 

Mr. CHABOT. Okay, thank you very much. 

Mr. Schroeder, if I could turn to you next. 

What, specifically, can be done to increase lender participation in 

the SBA programs? 

Mr. SCHROEDER. One specific thing that can be done is to reinstate the LowDoc program. You know, I’m very familiar with the 

letter that this Committee, as well as your Senate counterpart, 

sent to the SBA back in June of ’05, regarding not considering, not 

terminating the LowDoc program, which was terminated. 

Our bank participated in the LowDoc program. I don’t recall any 

losses or delinquencies that we had with that program, and, quite 

honestly, we genuinely miss that program. 

And, I would like to make the following point, and I reiterate 

this point, it’s critical to have a variety of programs to meet the 

needs, the individual needs, of businesses. There is no one program 

that you can sits well for every single borrower. You really need 

19

a basket of products and services, and be able to choose from 

among those to best meet the needs of each individual borrower. 

So, really, no one financial structure works well for every borrower, and there’s really no one size fits all. 

So, the LowDoc program would be one that we would like to see 

reinstated. 

Mr. CHABOT. Thank you. 

Mr. Bartram, of the borrowers from USA Bank, under the guaranteed loan programs, what’s the typical reason that they would 

not have qualified for a commercial loan from the USA Bank, your 

bank? 

Mr. BARTRAM. Well, from US Bank, our experience, and if we can 

kind of separate the kind of requests that we would see, we have 

an SBA Express Program that we utilize quite a bit, and so a customer would come in, and usually these are for the smaller loan 

requests, they would ask for $50,000, let’s say, on a conventional 

loan, and these are credit scored types of requests, so they may not 

meet certain credit scored criteria. So, we could shift them into the 

SBA program. 

For other SBA loans, it’s, typically, because the company is either a start-up or is a younger company, maybe less than five years 

old, where it doesn’t have the proven track record of cash flow for 

us to make a conventional loan. So, that customer could go into the 

SBA program. 

And lastly, it might be that the company, like Mr. Schmitt here, 

where they are looking to buy a long-term asset, commercial real 

estate, large piece of equipment, the SBA program affords us to 

provide longer terms. So, the company could save the cash flow to 

hire more people, let’s say. 

So, those are the typical reasons and why we use a program. 

Mr. CHABOT. Thank you. 

And finally, Ms. Landis, you brought up the need for greater 

transparency in small business credit scoring and/or loan approval 

requirements. Could you give us an example as to what, specifically, is lacking in this regard? 

Ms. LANDIS. Sure. What happens with the business of the credit 

scoring the way it has evolved to today, is only 30 to 35 percent 

of the credit score is based on actual payment history. The rest of 

it is based on how much credit is outstanding. 

These are things that I have learned in working in industry and 

being around it, the type of that credit, how new it is, think about 

the typical business owner, my business credit score, for example, 

because I personally signed for all my credit my business credit 

that’s grown my company rapidly, my personal credit resides on 

the same credit report, my business is six years old, so my credit 

is relatively new, because I am service provider without the hard 

assets to be able to borrow against, much of that tends to be credit 

card type debt. So, that brings my credit score down. 

I know this clearly, because I’m in the industry. Many SBA lenders do a first pass on the lending using their credit score, and in 

some cases they don’t give them an alternative if they fall below 

the credit score, they simply don’t get the financing. 

20

Most of the public is unaware of that. The credit scoring process 

does not distinguish between personal and business debt, and it 

puts us at a disadvantage. 

Mr. CHABOT. Okay, thank you very much. 

I yield back, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Sure, thank you, Mr. Chabot. 

Before I recognize Mr. Sestak, Ms. Tasker, you said that you 

were confused regarding the fact that the levels of the fees today 

are as high as they were ten years ago. Well, I’m not confused, because I know why, the fact that they were too high ten years ago, 

and that they are too high today. 

You know why they were reduced, because they were too high. 

Ms. TASKER. My point, Congresswoman, was that people are 

talking about fee—significant fee increases, and from other than 

where the fees were reduced by Congress for that two-year period, 

they are at a stable level, and that was the point I was trying to 

make. 

Chairwoman VELA ́ ZQUEZ. They were reduced because they were 

too high, this is why we reduced the fees. 

Mr. Sestak, you are recognized for five years—for five minutes. 

Mr. SESTAK. I went over time last time. 

Thank you, Madam Chairwoman. 

I hope I am not asking a question, and I’m sorry I had to step 

out and missed some of the testimony, which I did go over, I am 

curious about the trends, and, ma’am, if I might, Ms. Tasker, 

what’s the profile now of the lenders? Has it changed since 7(a) has 

moved to a zero subsidy program? 

Ms. TASKER. I don’t want to speak incorrectly, and I haven’t actually looked at the number, you know, compared based on the zero 

subsidy. 

I do know that our portfolio operates, you know, generally, 

around the 80/20 rule, and it has consistently, which means that 

about 20 percent of our lenders generate close to, you know, 80 percent of our volume, but that means we’ve got several thousand 

lenders that are doing businesses in their local communities. 

Mr. SESTAK. Do you know if the profile of the borrowers has 

changed, since we went to zero subsidies? 

In short, I’m curious, have there been changes in the communities that are being served? Are we missing what we should be 

getting to, not how much? What’s inside whatever how much is? 

What’s the profile on the borrowers? 

And, if you don’t know, is it possible to find it and get back? 

Ms. TASKER. We can certainly give you some additional information. We do know that the loan size has gone down significantly 

over the last several years, and the average loan size is about 

$140,000, which means we are reaching more small businesses. We 

know we are actually seeing increases in certain areas. 

Mr. SESTAK. Does your data—can you better assess, are you able 

to with your database, because I’m really taken with data and modeling, are you able to figure out, you know, the profiles and what 

types of small businesses at all, if this has any implications, as 

compared to ’04, ’03? 

Let me just ask, if you could—if anyone could get back on that 

and the 504 lenders, the same type of profile that might have been 

21

impacted, is there any changes in trends that might be, you know, 

how do we compare the snapshot back then with the trends now? 

Ms. TASKER. We can get you, perhaps, not everything you would 

like, but we can look at the data that we have, and we can certainly give you industry, you know, types of loans, and geography. 

Mr. SESTAK. The other question I had was the LowDoc program, 

as we discontinued it, you know, we used to give access to $150,000 

for a shorter period of time and less, and I think we’ve moved—

I think that guaranteed 80 percent, correct? 

Ms. TASKER. It depended on the size of the loan. I mean, it was 

an 85 percent guarantee after—

Mr. SESTAK. Have there been any implications of moving to SBA 

Express, where we are only guaranteeing 50 percent, and that’s by 

the private lender, isn’t it, or is it still by—it’s primarily run privately now, correct? I mean, there’s kind of been a shift, right, from 

LowDoc to SBA Express. 

And, I’m curious again, are there any ramifications. or any profiles, or trends, having made this fairly dramatic shift, I would 

think? 

Ms. TASKER. We have seen a significant increase in our SBA Express program. It is, all of our loan programs are delivered by our 

lenders and funded by our lenders. We guarantee the loan. For the 

SBA Express program, it is a 50 percent guarantee, not the typical 

75 percent guarantee for our program. 

LowDoc itself, though, did not perform well for us, and as we indicated, and that actually was a centralized program, too, it was 

centralized in Kentucky and in Sacramento. 

Mr. SESTAK. And performing well means? 

Ms. TASKER. We had a high level of defaults, and it affected our 

performance of the portfolio overall. 

We are centralizing as has been stated. We will have centers 

again in Sacramento and in Hazard, Kentucky, where we believe 

that a lot—and we are looking for a more streamline process for 

smaller loans, which would be consistent with LowDoc, we just 

need to put more controls around it. 

Mr. SESTAK. The reason I’m curious is, my district, and it’s adjacent to Philadelphia International Airport, 85 percent of—we lost 

607 small business in three years, one out of five manufacturing 

establishments. I’m very curious about, I’ve watched what’s happened over the years with SBA’s programs, if there’s any data to 

indicate, you know, who is being impacted, some might say 

harmed. But, I think the focus has to be that we shifted something 

as we moved loan making and administrative processes to private 

commercial partners, I can’t believe we are just straight sticking 

this profile out, and there must be something in there to show, is 

SBA really doing what—you know, focusing upon who it should be 

focusing upon, as you’ve made this shift, at least my understanding 

of the shift over the last few years. Is that all right? 

Ms. TASKER. We can certainly try to get you some information, 

and you may want to follow up to make sure we get you what you 

are looking for. 

But, lenders have been delivering our programs for 15 years, 

there hasn’t been a shift recently. 

22

Mr. SESTAK. Right, but we’ve shifted, you know, the subsidies, I 

mean, some of that cost is now being borne by others than it was 

before, am I correct? 

Ms. TASKER. We went to a zero subsidy program in 2005. 

Mr. SESTAK. Yes. 

Ms. TASKER. And—

Mr. SESTAK. There may be no correlation, but I’m just trying to 

get a grip, why 607 small businesses, the national level of education is higher than—the level of education in my district is above 

the national median for number of high school graduates and college graduates, yet, 607 small businesses disappeared. 

I’m sure there’s no correlation, but I’d sure like to see if there 

was, you know, what the profile is, and thank you very much. 

Sir? 

Mr. SCHROEDER. Congressman, if I could just dovetail off of—

onto your comments. I think the observations that you made are, 

you know, very, very correct. There is a concentration—there’s a 

concentration in the larger banks doing a much greater percentage 

of the SBA loans. 

There’s also a trend in terms of community banks not participating in the programs, and dropping out of the program, and 

there is also a trend in having a smaller dollar size, average dollar 

size, of the SBA loans. 

I think our bank is a little bit different, our community bank is 

a little bit different. We tend to do a smaller number of larger SBA 

loans, and in addition to that, in terms of marketing, I think we 

market our programs a little bit different, perhaps, than some 

other banks. We take a more traditional approach. We mine our opportunities through more traditional sources, attorneys, accountants. 

Mr. SESTAK. Right. 

Mr. SCHROEDER. CPAs, insurance professionals. 

Chairwoman VELA ́ ZQUEZ. Time. 

Mr. SESTAK. Sir, I am out of my time. But, the reason I am curious is, I’ve watched in Head Start, as they want to take these programs, and large non-profits come in, and the little local communities—no longer are able to focus and be, not just advise, but 

focus, and I’m curious if that’s happening as bigger banks come in 

over smaller banks. Don’t know, but that’s the trend. 

Sorry. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. SESTAK. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Thank you, your time is expired. 

Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you, Madam Chair. 

Thank you all for appearing today. 

I have a smaller or more minor issue, Ms. Tasker, I’ll get to after 

discussion of the larger issue here. Some of this ground has already 

been covered, but I think it’s worth repeating. 

The underlying tension in the hearing is, the good news is we 

have more loans and a larger loan portfolio. Your concern, Mr. 

Schroeder, about increased concentration, though, in the industry. 

23

And, I would like, let’s unpack that. You’ve done a good job unpacking it from your perspective, and what are some of the potential causes. 

Mr. Bartram, perhaps, you can address that issue, given that you 

seem to be one of the beneficiaries, given your larger loan portfolio 

size, or your larger dealings with the SBA. Is this a result of economies of scale, efficiencies that are leading to, again, increased loans 

in the market, increased opportunities? How do you balance that 

with Mr. Schroeder’s concern that we do have an obligation to ensure that the more participants, or the more banks, or other potential lenders that participate, will provide more access to larger 

numbers of people? 

If both of you would address that, I’d appreciate it. 

Mr. BARTRAM. Certainly, I would appreciate that. 

There are really two reasons, I think, for that. First of all, the 

SBA Express program, which provides a 50 percent SBA guarantee, and the tradeoff for that is that the lender gets to use their 

own processes and their own loan documentation, so they can do 

it in a very efficient manner, and they can dovetail that in with 

their conventional process. 

And, because of the larger banks have a lot larger flow of credit 

requests, they have done a very good job, US Bank being one, of 

utilizing the SBA Express programs, and those, typically, are very 

small loans. The average size of our SBA Express loan is $33,000. 

These are made to customers that we wouldn’t have serviced before, because it acts as a default program. So, we pick up a client 

that we would have, absent the SBA Express product, not served. 

So, the growth in units in the SBA is attributable to the SBA Express program, and because, as I mentioned, larger banks have utilized this program, and that’s why if you look at the top ten SBA 

lender in units today it is comprised mostly of large banks. Ten 

years ago it was non-bank lenders and community banks. 

The second issue is that some time during the 1990s, and I was 

the Chief Operating Officer of a small community bank, big banks 

made the decision that small business lending was profitable venture to get into. And so, many of the large banks really did focus 

on small business lending. 

We used to get our transactions, when I was a community banker, from the larger banks that didn’t want to provide a half million 

dollar credit to a customer, because it was too small for them to 

deal with. Today, big banks want that business. So, the bigger 

banks are doing a very good job in servicing small business clients. 

So that, too, has impacted that shift. 

Mr. FORTENBERRY. Can I interrupt you one moment? Do you 

have agreements with smaller banks, even community banks, to 

act as, in a certain sense, retail brokers, the storefront that allows 

you to pass through, or allows them to pass through loans to you? 

Mr. BARTRAM. We certainly do. We are the sixth largest bank in 

the country, and we do correspondent banking, providing other 

services for small community banks, and one that we also provide 

is that if you have an SBA loan, and you don’t want to do it, we 

can go ahead and do it, and we can then go ahead and compensate 

you for that. The deposits and other services would stay with that 

bank. 

24

Mr. FORTENBERRY. Thank you. Time is limited, thank you. 

Mr. SCHROEDER. Again, I can only speak to my experience in our 

community bank, and we really mine our SBA lending opportunities, as I mentioned before, through more traditional sources, professionals, financial consultants, attorneys, CPAs and the like. 

Once we’ve identified those opportunities, we do a thorough job 

of underwriting those potential opportunities, if they are approved 

fund them, and that’s—you know, that’s really the way we have developed in terms of our own bank. 

Mr. FORTENBERRY. Thank you. 

And, Ms. Tasker, I need more information on the New Markets 

Tax Credit Pilot Program. 

Ms. TASKER. What kind of information are you looking for? 

Mr. FORTENBERRY. Well, who is going—where is it going to be piloted, and who, primarily, is it going to be targeted to, or give me 

some examples of where it has worked. I’ve heard of a circumstance in Milwaukee. 

This is just a request to your agency, you can work—you can get 

back to our staff. 

Ms. TASKER. All right. Thank you. 

Mr. FORTENBERRY. Thank you. 

Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Altmire. 

Mr. ALTMIRE. Thank you, Madam Chair, and I want to say hello 

especially to my constituent, Marilyn Landis, who has been a 

friend for a long time, and an advocate for small business, and a 

champion to small business. Welcome today, and thanks to the rest 

of the panel. 

I’m Chairman of the Oversight and Investigations Subcommittee, 

so I have an oversight-related question, that in order to keep costs 

low under the 504 program, it’s vital that defaulted loans be properly liquidated. In many cases, when a 504 program borrower defaults, it’s the SBA that takes the required liquidation and foreclosure actions. 

So, how, aggressively, has the agency pursued liquidation and 

stemmed losses on defaulted 504 loans? 

Whoever is most appropriate to answer. 

Ms. TASKER. I will take a shot at it, Congressman. 

We have, our liquidations are centralized. We issued, right now, 

and handled—not centralized, but handled through SBA, and we 

work with the CDC locally to liquidate the loans, we issued a proposed regulation to allow the CDCs to do more of the liquidation, 

and we hope to have that completed shortly. 

But, generally, we believe that liquidations are effective. The 

losses in the program are insignificant, and resulting in, fees today 

are really at a record level, and, you know, fees, really, are driven 

by the defaults in the program. 

Mr. ALTMIRE. How many personnel work, and are currently at 

work, liquidating defaulted 504 loans? 

Ms. TASKER. I would have to get you that number, I’m sorry, I 

don’t have it here. 

25

Mr. ALTMIRE. But, do you feel confident that these are folks who 

are trained and have the experience necessary, and committed to 

that task? 

Ms. TASKER. Yes. We have been in the process of centralizing 

that away from the district offices, although we are still going to 

use local counsel in that area, and so, as we are centralizing we 

are making sure that we have talented and experienced people 

working on that, and those that are being trained, you know, at a 

less experienced level are partnered with people that have experience, so that we ensure an effective job is done. 

Mr. ALTMIRE. Thank you. 

Second question. Lending in the 504 program is expected to increase this year, but the SBA has not proposed to increase the program level funding from the amount that was requested for FY ’07. 

What is the SBA’s management plan to process the significant increase in 504 loans? 

Ms. TASKER. We believe that the $7.5 billion that we proposed is 

adequate for this year. We didn’t reach that level last year, so we 

believe we are in good standing. We do track it year to day, and 

we are consistent with last year. 

Mr. ALTMIRE. Do you expect in future years there will be any 

added employees to process, or do you think that the level is sufficient? 

Ms. TASKER. Certainly staffing has to be driven by production 

metrics, and if production increased we would have to accommodate it through either improved processes and/or increased staffing, 

depending on the best way to approach it. 

Mr. ALTMIRE. Great, thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Schroeder, today over 60 million Americans live in a community that has been designated with a shortage of health professionals. If the 7(a) program were adapted to provide loans to medical professionals, located in under-served areas, what would be 

necessary to encourage more lenders to market these loans? 

Mr. SCHROEDER. I think, certainly, a mission of the SBA is to 

identify areas where their programs can address the needs of the 

communities. If this is identified as a legitimate need within either 

a community, group of communities, or geographic area, as far as 

I’m concerned they should have the available programs to be able 

to serve those needs. And, that would include, certainly, what you 

have said in terms of SBA loans related to the health care professionals. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Last year, on a bipartisan basis, Mr. Schroeder, many members 

of the Small Business Committee urged the Small Business Administration to preserve the LowDoc program. We have heard various 

arguments as to why the program was eliminated, but there has 

been little analysis conducted by the SBA to support elimination of 

the program. 

What are your observations on the reasons why LowDoc program 

was terminated? 

Mr. SCHROEDER. Again, I don’t have specific inside knowledge, 

you know, from within the SBA, as to why those—why that program was terminated. 

26

My feeling, however, is that the LowDoc program would be best 

suited for banks that do a smaller number of SBA transactions, 

and those, you know, may very well be in smaller communities, in 

rural communities. 

And, I believe by preserving or reinstating that program, we 

would legitimately increase the number of banks, particularly, the 

smaller banks and banks that don’t do large volumes of SBA loans 

to get back into the program, which I think is really a stated intent 

of the SBA. 

Chairwoman VELA ́ ZQUEZ. Ms. Tasker, I would like for you to submit in writing the matrix that you used to conclude that the program was too costly. 

Ms. TASKER. Yes, ma’am. 

Chairwoman VELA ́ ZQUEZ. Ms. Bean, you will be recognized for 

five minutes. Are you ready? I’m sorry, no, let me go to Mr. Chabot 

first. 

Mr. CHABOT. Thank you, unless Ms. Bean would like to go, I just 

have a couple of quick questions. 

Okay, thank you. 

Very quick questions, relative—I think Mr. Larson raised the 

issue about liquidation rates, I think we only get back about .20 

cents on a dollar, if I’m not mistaken, which is pretty low rate. 

And, it’s my understanding that it’s being looked into, kind of a 

better alternative. Perhaps, allow the certified development companies, either by themselves or through the retention of liquidation 

experts, to liquidate their own loans, and, hopefully, this would increase returns, thereby reducing the subsidy costs and the fees that 

lenders and borrowers must pay to maintain the zero subsidy rate 

in the program. 

Is that accurate, Ms. Tasker? Is that my understanding of what’s 

being considered, or could you shed any light on that? 

Ms. TASKER. Yes, Congressman. 

As I indicated, we actually issued proposed regulations last fiscal 

year that would allow the community development companies to 

liquidate their own loans, under certain conditions that indicate, 

you know, the qualifications to do so. 

We anticipate issuing that guidance that would give them that 

opportunity. 

Mr. CHABOT. And, I assume you would agree that .20 cents on 

a dollar is something that certainly needs to be improved upon, and 

that’s what the goal of this is. 

Ms. TASKER. Yes, although I would need to verify for you that 

that’s an accurate number. 

Mr. CHABOT. Okay. 

Ms. TASKER. I do just want to point out that in the 504 program 

we eliminated the up-front fee in the Fiscal Year ’08 budget, and 

then the annual ongoing fee increased slightly from, what, .018 

percent to .021 percent, which is really to accommodate some of the 

fee we would need by eliminating the entire up-front fee. So, it’s 

a very, very low fee, which indicates it’s a good performing portfolio, and that we haven’t had significant losses. 

Mr. CHABOT. And then one other point I just wanted to make, 

if you could clarify, there’s been, you know, considerable discussion 

here this morning, and this has been an ongoing issue, and I think 

27

it’s important for us to address the issue, and that’s relative to the 

rates which were at one level, and then for a couple years went to 

a lower level, and now they are back up to where they were initially, etcetera. 

The two years that they were lower, my understanding is, is that 

had to do with a challenging economy, and a recession or whatever, 

and that was the reason for lowering them until we could kind of 

kick start the economy, get it moving again, and you are back up 

at something that over time, when you are dealing with budgets 

and how much money you are going to spend in all areas, this is 

one that’s factored into that. 

Is what I said accurate, and do you want to expound upon that 

in some manner? 

Ms. TASKER. No, that’s correct, and again, the fees are at the 

same level, the issue really is now whether or not, you know, who 

is paying for it, the person that’s getting the benefit by virtue of 

the loan, as opposed to the taxpayer. 

Mr. CHABOT. All right, thank you very much. 

Chairwoman VELA ́ ZQUEZ. Ms. Bean? 

Ms. BEAN. Madam Chairwoman, thank you for recognizing me. 

I do apologize to all here for not being here earlier. We had a financial services mark-up that I was in, and I do apologize, but glad 

to see you all here. Thank you for your advocacy of the small business community and for helping them grow, by providing access to 

capital. 

I also want to acknowledge Mr. Schroeder, who is from Illinois, 

and right near my district, and maybe I’ll direct this question to 

him, as being in the community banking business, one of the issues 

that’s been very important to me is the 7(a) loan program, particularly, that the fees continue to be going up, and that becomes, not 

only unhelpful to the borrowers, but to the lenders themselves. 

Can you speak to how important it is to you to see those fees be 

reduced, to give you the flexibility to use some of the funding so 

that you can keep those fees reduced? 

Mr. SCHROEDER. Definitely. Again, from our perspective, the increase in fees have had several undesirable results within the SBA 

loan programs. 

Obviously, when you increase fees something has to give, and as 

we have discussed in our testimony, written testimony, as well as 

the oral testimony, really, I think two things have happened. 

I think there’s been, as a result, a reduction in the number of 

lenders that are active in the program, particularly, community 

bank lenders, and in terms of the borrowers, particularly, the borrowers at the margins, I think are the ones that are suffering the 

most as a result of these fee increases. 

So, we would certainly encourage the SBA To roll those back, to 

make them as reasonable as possible. 

Ms. BEAN. Well, I’m glad to hear you confirm that. I know Ranking Member Chabot and I are working on some legislation to address that and provide for that flexibility. But, your real-world perspective I think helps support our understanding of what we’ve 

been hearing from our districts. I know my district has really benefitted from the 7(a) program. There are a number of folks across 

28

all three counties that I represent in Cook, Lake and McHenry, 

who have been able to grow. 

Some people think of the loans as the sort of incubator for new 

businesses. What I’ve seen more of is, as people are ready to take 

on that next plant and expand into new services or new products, 

that loan funding makes all the difference to allow them to continue to grow their business, which certainly has a very positive effect on our economy in terms of jobs, but also for those smaller 

businesses around them that are part of their supply chain in their 

growth model. 

And so, I’m going to continue to support that. 

And, I yield back. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Chabot? 

Okay, well, let me take this opportunity again to thank all the 

witnesses for the insightful information that you have provided us, 

and the type of concerns and issues that have been addressed 

throughout the hearing. 

And, let me just say that in the next week or so we’ll be moving 

legislation that will address, and will take seriously, some of the 

issues and concerns that have been raised this morning. 

I will ask unanimous consent for any statement that wanted to 

be submitted to the record be submitted, and I want to, for the 

record to reflect that this hearing is adjourned. 

Thank you. 

[The hearing was adjourned at 11:32 a.m.]

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