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36–109 PDF 2007

FULL COMMITTEE LEGISLATIVE HEARING

ON THE SBA’S MICROLOAN

AND TRADE PROGRAMS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 12, 2007

Serial Number 110-35

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 

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 

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 

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 

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

Hager, Michael, U.S. Small Business Administration .......................................... 4

Darien, Kristie, National Association of the Self-Employed ................................ 5

Kelly, Kevin, Association for Enterprise Opportunity .......................................... 7

Cordero-Guzman, Dr. Hector, City University of New York ................................ 9

Morrison, Dr. James, Small Business Exporters Association of the United 

States .................................................................................................................... 11

Gaskin, William E., Precision Metalforming Association ..................................... 13

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 32

Chabot, Hon. Steve .................................................................................................. 34

Altmire, Hon. Jason ................................................................................................. 36

Hager, Michael, U.S. Small Business Administration .......................................... 37

Darien, Kristie, National Association of the Self-Employed ................................ 44

Kelly, Kevin, Association for Enterprise Opportunity .......................................... 52

Cordero-Guzman, Dr. Hector, City University of New York ................................ 55

Morrison, Dr. James, Small Business Exporters Association of the United 

States .................................................................................................................... 69

Gaskin, William E., Precision Metalforming Association ..................................... 81

(V) 

(1)

FULL COMMITTEE LEGISLATIVE HEARING 

ON THE SBA’S MICROLOAN AND TRADE 

PROGRAMS 

THURSDAY, JULY 12, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:06 a.m., inRoom 

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

[Chairwoman of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Shuler, Gonza ́lez, Cuellar, 

Ellsworth, Sestak, Chabot and Heller. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I am very pleased to call 

to order this morning’s hearing on proposals to reauthorize Small 

Business Administration’s microenterprise and international trade 

programs. As we examine these measures to update the SBA policies, I believe there are two important facts to consider. First, the 

economy has drastically changed over the past decade. Most notably, we have seen a broadening of the entrepreneurial base to now 

include a greater number of women and minorities. At the same 

time, the U.S. economy has become significantly integrated with 

those of countries across the globe, providing new opportunities, 

but also increased competition. 

However, while many are doing well in these business conditions, 

some are being left behind. Microenterprises, the smallest businesses in terms of required startup capital and employees, face 

competition without the resources to enjoy an equal playing field 

in the market. Global integration poses an additional challenge, 

leaving many small businesses without the capacity to export their 

goods abroad or thrive in domestic markets. Together these developments are challenging small firms’ abilities to remain competitive. 

For small firms to thrive in this new environment, it is important they compete on a level playing field. The two legislative 

measures we are discussing today will help accomplish this by expanding and modernizing the tools that SBA can offer. This proposal will help ensure small businesses can succeed in a dynamic 

and challenging economy. 

In order to support growth in the country’s smallest commercial 

enterprises, the Committee will hear comments from the Microloan 

Amendment and Modernization Act which will be introduced by 

2

Mr. Chabot today. This proposal strengthens and broadens the 

reach of SBA’s microlending activities. The measure requires the 

agency to transmit credit history information to major credit reporting bureaus, which will help borrowers improve their credit 

scores. 

In response to the evolving needs of entrepreneurs, the legislation permits borrowers to draw on longer-term loans, providing 

them with greater financial stability. Microlenders are also given 

greater control of their resources, and as a result will be able to 

direct technical assistance where it is needed most. 

If enacted, this legislation will bolster microlending efforts in the 

United States, and this will occur during a time when such initiatives are being championed around the globe. While some of these 

global developments are welcome, others have created challenges 

for small firms to compete in the international marketplace. 

To help overcome the these barriers, Representatives Holt and 

Sestak introduced H.R. 2992, the SBA Trade Programs Act of 2007. 

This legislation focuses the agency’s efforts on the trade concerns 

of small businesses and will help firms dislocated due to 

globalization better access to the assistance they need. As trade 

policies are developed, the measure requires the agency to work 

with Federal and international organizations to represent small 

business interests. Finally, it requires an annual trade strategy 

outlining the agency’s effort to boost small business’ share in domestic and foreign markets. Through this trade legislation, the 

SBA will be more prepared to assist the business community in the 

international marketplace. 

The economic changes we are experiencing today present real 

challenges to the SBA and its programs, whether it is the changing 

demographics of entrepreneurs or the reduction of trade barriers. 

The fact is that businesses require assistance regarding challenges 

that were not envisioned when many of the agency’s programs were 

created. Going forward, Congress will seek to modernize the agency’s resources so that they remain relevant in an entrepreneurial 

economy that continues to evolve. Small firms’ innovation and flexibility provide them with a natural ability to remain at the cutting 

edge of their industry. With adequate assistance and access to tools 

to realize their full potential, I believe the two proposed legislative 

measures will ensure their ability to succeed even in a challenging 

environment. 

To conclude, I would like to extend my appreciation to all the 

witnesses that are before us today. Thank you for coming, for taking time out of your busy schedule. And I would like to also recognize the Ranking Member Mr. Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you very much, Madam Chair. I want to 

thank you for holding this hearing to review legislation to improve 

the operation of the Small Business Administration’s microloan and 

international trade programs, and we want to thank the witnesses 

all for being here this morning as well. 

A reexamination of these two programs is long overdue, and I am 

interested in hearing from the witnesses on any suggestions that 

they might have as we prepare for a markup on these two bills 

3

next week. The Committee already has heard about the efficacy of 

microloans to generate economic growth and redevelopment for individuals in areas that are frequently overlooked by commercial 

lenders and the SBA’s guaranteed loan programs. I know that 

parts of my community, for example in Cincinnati, have areas in 

which a greater spark of entrepreneurship would lead to increased 

economic revitalization. I believe that improvements to the 

Microloan Program can generate that spark; however, those improvements must come within the context of budget constraints. 

I look forward to the witnesses’ testimony and suggestions for enhancing the Microloan Program. Some suggestions we have heard 

include increasing the number of loans that intermediaries can 

make to be eligible for participation in the SBA program, eliminating the cap on interest rates that microlenders may charge to 

borrowers, requiring that some microloan organizations focus on 

educational services and others on lending, and centralizing certain 

back-office operations. 

The other program that we are examining today is the SBA’s assistance provided to small businesses engaged in international 

trade. Although there are a number of general entrepreneurial development programs that can provide some assistance in this area 

to small businesses, the area is fraught with regulatory issues that 

require an extensive specialized knowledge that may not be available from the SBA’s entrepreneurial partners. Thus, it is not surprising to find that the SBA created other programs to meet the 

needs of small business exporters. 

Since 1992, small businesses’ participation in international trade 

has expanded quite dramatically. According to the most recent statistics available from the Department of Commerce, there are 

about a quarter of a million small businesses that export. Revenue 

increased from $102.8 billion to $203 billion back in 2004. 

There is no doubt that small businesses are playing a vital role 

in reducing America’s trade deficit. Continuation of this success 

and even greater impetus on small business exporting will benefit 

the entire American economy. The question becomes how to do this 

in a manner that fits within the current budget situation. 

I look forward to the witnesses providing us with detailed assessments of the current state of SBA international trade assistance 

and their suggestions for improvement. These might include greater coordination within the SBA, better interaction with other Federal agencies, and increased technical assistance. Of course, those 

suggestions that can be accomplished without additional expenditure of resources will be most seriously considered by the Committee. On the other hand, simply moving boxes around on an organizational chart without more, without costing anything may not 

provide the services needed by America’s small businesses that currently provide exports or want to go global. 

Again, I want to thank the Chairwoman for holding this important hearing this morning, and I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot.

ChairwomanVELA ́ ZQUEZ. Our first witness is Mr. Michael Hager. 

Mr. Hager is the Associate Administrator for Capital Access at the 

U.S. Small Business Administration. He manages and oversees all 

4

of the agency’s programs and operations concerning financial assistance by way of loans and investment, including international 

trade initiatives. Welcome. 

STATEMENT OF MICHAEL HAGER, ASSOCIATE ADMINISTRATOR FOR CAPITAL ACCESS, U.S. SMALL BUSINESS ADMINISTRATION 

Mr.HAGER. Good morning, Chairwoman Vela ́zquez and Ranking 

Member Chabot, distinguished members of the Committee. And I 

want to thank you for inviting me to discuss legislative proposals 

affecting the microprogram and international trade programs of the 

SBA. I would like to begin by asking for the opportunity to submit 

for the record at a later date a revised version of our written testimony due to the late receipt of the document from your office yesterday, if we could. 

ChairwomanVELA ́ ZQUEZ. Without objection. 

Mr.HAGER. I will begin my remarks by addressing the Microloan 

Program. My Deputy Janet Tasker testified on SBA’s positions in 

the microprogram and included in the fiscal year 2008 leg package, 

and I would like to point out that the Microloan Program as currently structured is costly to the taxpayer. 2006, it cost 85 cents 

to the government for each dollar loaned to the microloan intermediary. That is compared to about 3 cents for the 7(a) program. 

SBA commends the Committee’s interest in making sure that 

microborrowers who make timely payments on their loans are able 

to establish positive credit history, and the administration is interested in finding a workable solution to provide this data to credit 

reporting agencies. 

We believe that the technical assistance provisions in the bill fall 

short of what is prudent to ensure that counseling and training is 

provided to entrepreneurs and contributes to their success. 

With regard to the Committee’s proposal to move the PRIME 

program to the Small Business Act, the SBA does not support reauthorization of the PRIME program. We continue to object to the 

overlapping programs focused in this area of technical assistance. 

I would like now to return to the international trade legislative 

issues, and as you have indicated, international trade is rapidly increasing in importance to the U.S. economy, and it is clear that the 

exporting of the new growth market for small business is apparent. 

The SBA helps exporters carry out their export transactions 

through the Export Working Capital Program, the International 

Trade Program for long-term financing and Export Express. 

In fiscal year 2006, the SBA experienced record export lending, supporting over $2 billion in export sales. 

On the policy side of our mission, the Office of International 

Trade influences the overall international trade environment, 

which can affect the prospects of each business beyond what the 

SBA could ever do for businesses on an individual basis. 

And now for the legislative proposals. I am pleased to have the 

opportunity to comment on the Committee’s international trade 

legislation. However, we do have serious concerns about the Committee’s proposals to expand SBA’s roles and its responsibilities in 

international trade policy and promotion. We believe that the Committee’s legislation would create extensive duplication of existing 

5

programs and roles under the statutory authority of other U.S. 

trade and investment agencies, namely Commerce, USTR and ExIm. 

With regard to the legislative language in section 301, USTR informs us that our trading partners may find that many of the conditions specific to the proposed loan may be prohibited export subsidies as defined under the WTO Agreement on Subsidies and 

Countervailing Measures. This section creates a potential new definition of dumping by making the loans dependent upon the influence or the influx of imports below U.S. average production costs. 

The provision could be interpreted as a double remedy for dumping 

that would be inconsistent with our international obligations under 

WTO. 

With regard to the trade compliance provisions, Congress has established the SBA’s roles as a financial and technical assistance 

agency. And the SBA does not have the expertise to deal with trade 

compliance issues and other issues of complexity. The SBA works 

regularly with Commerce, USTR and other agencies on these 

issues and agencies that are well equipped with those specific compliance and enforcement roles. 

In conclusion, the administration is concerned that the Committee’s legislative package is inconsistent with our international obligations and the scope of SBA’s role. We appreciate your commitment to the increased opportunities for America’s small business in 

the international marketplace and ask to work with you on alternative ways to accomplish our mutual goals. 

Chairwoman Vela ́zquez, that concludes my testimony, and I will 

look forward to any comments or suggestions. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Hager may be found in the Appendix on page 37.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Ms. Kristie Darien. 

Ms. Darien is the executive director of the legislative offices of the 

National Association for the Self-Employed. NASE is the Nation’s 

leading resource for the self-employed and microbusinesses, providing a broad range of benefits and support to help the smallest 

businesses succeed. Founded in 1981, the NASE is made up of hundreds of thousands of microbusinesses, and it is the largest nonprofit nonpartisan association of its kind in the United States. 

Welcome. You have 5 minutes. 

STATEMENT OF KRISTIE DARIEN, EXECUTIVE DIRECTOR, LEGISLATIVE OFFICES, NATIONAL ASSOCIATION OF THE SELFEMPLOYED 

Ms.DARIEN. Thank you. Nice to see you all again. On behalf of 

the National Association for the Self-Employed and our 250,000 

microbusiness members nationwide, I would like to thank the Committee on Small Business for allowing me to speak here today regarding the Small Business Administration’s Microloan Program 

and how it assists the access-to-capital needs of self-employed and 

microbusinesses within our Nation. 

Shonda Parker is a NASE member in Louisiana. She owns Naturally Healthy, a family business which is a medical and birthing 

6

supplies company. A few years ago Ms. Parker was looking to expand her operation. In efforts to find financing, she went to various 

financing banking institutions in her area to apply for a loan. She 

indicated to me that the loan officers there she met with either 

turned her down right away, were concerned about the risk of 

funding her business, or were uninterested due to the small loan 

amount she needed. 

Shonda, encouraged by a friend, applied and received an SBA 

loan at an affordable interest rate and thus was able to grow her 

business. She believes the SBA backing and guarantee of the loan 

made all the difference in her ability to get funding. 

Shonda’s story is representative of the experience of many of 

NASE’s microbusiness members. The lack of access to funding is a 

large hurdle negatively affecting the startup and continued growth 

of microbusiness. Sixty-one percent of NASE members feel that 

there are not adequate funding resources for this important business demographic. 

Traditional lending institutions, such as banks and investors, are 

unlikely to offer loans and investment capital to microfirms due to 

a variety of reasons. One barrier to microlending is a concern that 

startups and smaller enterprises are risky investments since growing businesses typically exhibit erratic bursts of growth and downturn. The perceived risk of these types of companies reduces the 

chances of a microbusiness to obtain financing. 

Another issue is that microbusinesses by and large require smaller amounts of capital, and thus banks or investment companies 

often believe that it is not efficient use of their time or resources, 

nor will they receive a substantive return on investment from such 

a small loan amount. 

With this in mind, you may ask, how are microbusiness loan 

owners currently funding their business? According to a March 

2007 NASE survey, approximately 58 percent of our members use 

their personal savings to start their business. A little over 9 percent use a home equity loan to start up their business. As microbusiness owners look for ongoing financing in order to maintain 

and expand their business, 36 percent continue to use their personal savings, while over 21 percent turn to credit cards. Both of 

these avenues do not promote long-term stability for the owner or 

the company. The use of personal savings puts a microbusiness 

owner in a precarious position in which he or she would be unable 

to recover financially should an unexpected and costly personal or 

business expense occur. The usage of credit cards and personal 

lines of credit with their high and fluctuating interest rates can increase debt and make it difficult for a business owner to pay back 

borrowed money. This in turn can negatively affect a microbusiness 

owner’s credit score. 

Credit scores are a central component to our financial system. 

The reliance on FICO credit scoring by traditional lending resources to examine potential borrowers is a critical hurdle faced by 

microbusinesses. In fact, 26 percent of our members believe their 

credit score is their biggest barrier to obtaining financing. 

With all that said, one beacon of opportunity for a microbusiness 

owner in the challenging realm of business financing is the Small 

Business Administration’s loan programs, particularly the 

7

Microloan Program. The Microloan Program addresses all of the 

above barriers that affect access to capital for microbusinesses. 

While banks are an important component to the program due to 

their work with microlending intermediaries, microbusiness owners 

applying for financing through the Microloan Program are not subject to the same biases or barriers found in traditional lending. 

They are able to obtain small loan amounts via community-based 

nonprofit intermediaries whose sole focus is to assist them in their 

endeavor of starting a microbusiness. Most importantly, these 

intermediaries have essential expertise on the needs of this key demographic. 

The technical assistance component to the Microloan Program is 

a crucial element which enables intermediaries to assist microbusiness owners step by step through their development and growth. 

The training and assistance not only increases the likelihood of full 

repayment of the loan, but augments business survival and success. 

The NASE strongly supports the Microloan Program. We have 

consistently advocated for increased funding, lower lender and borrower fees, and administrative improvements upon SBA loan programs. Based on our initial review, the NASE is supportive of the 

Committee’s impending legislation to improve upon the SBA 

Microloan Program. In particular, we are pleased to see provisions 

including a way to facilitate the transmission of credit reporting information about the borrowers from intermediaries to major credit 

reporting agencies. This would go a long way to help some of our 

members grow and better their credit history. 

In conclusion, I encourage you to continue to support the SBA 

loan programs, particularly the Microloan Program, and ensure 

their viability and success by pushing for increased funding and 

improvements. Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Darien. 

[The prepared statement of Ms. Darien may be found in the Appendix on page 44.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. Kevin Kelly. 

Mr. Kelly is the managing director for policy and advocacy of the 

Association for Enterprise Opportunity. AEO is the national association of community-based organizations that provide entrepreneurial education, access to capital and support to aspiring and active low-income entrepreneurs. Its members provide most of the 

loans and technical assistance that are allocated on the Microloan 

Program. 

Welcome, sir. You have 5 minutes. 

STATEMENT OF KEVIN S. KELLY, MANAGING DIRECTOR FOR 

POLICY AND ADVOCACY, ASSOCIATION FOR ENTERPRISE 

OPPORTUNITY 

Mr.KELLY. Thank you, Chairwoman Vela ́zquez, and thank you 

also to Ranking Member Chabot and to the members of the Small 

Business Committee. 

I am pleased to be here today to discuss the reauthorization of 

some of the programs at the SBA, specifically the Microloan Program, PRIME, and also the Women’s Business Center program, I 

8

will just mention, is also a program that is of interest to our members. These small programs, relatively speaking, in the Federal 

budget, these programs are absolutely essential to our members 

around the country, groups that do the microenterprise development work. I work with the actual entrepreneurs, and they see how 

beneficial these are on the ground in their communities. 

I want to mention that these programs are, in fact, complementary; that they are not duplicative; that they serve different entrepreneurs. It is basically like a spectrum. They do different things 

for different people. It is not the same thing. 

I also wanted to comment on the administration’s proposal to 

change the Microloan Program so that it would eliminate the subsidy rate and increase the interest rate on the loan portion, and to 

defund the technical assistance part of the program and have other 

entities pick up the technical assistance work, such as SBDCs and 

so forth. Our members know that this is not a workable proposition; that this program has, in fact, been very successful, less 

than 1 percent default rate in the history of the program. And this 

is due to this combination of the lending and the technical assistance being provided by the very same organization. When there is 

problems that pop up, the group is able to discover them and help 

the entrepreneur work through them immediately. They have a 

self-interest in the loan being paid back, obviously, since they lent 

the money. Somebody else would not have that same level of selfinterest. 

The cost of the program is also, in fact, very low if you look at 

how much is spent versus jobs that are created and retained. Fiscal 

year 2006, 9,955 jobs were created or retained through the 

Microloan Program. If you look at the technical assistance dollars 

that were appropriated for last year, $13 million, those are really 

the dollars that are being spent. The loan money is going out, but 

it is also coming back in. Like I said, there is less than a 1 percent 

default rate. So if you really just take the TA money and look at 

how much it has created in the way of jobs, or retained in the way 

of jobs, during that time, it works out to be very little. If you do 

the division $13 million by 9,955, I would say it is a better job creation per dollar of the Federal budget than most of the programs 

that are out there right now. That is a different way of looking at 

it than you usually hear. 

There are some changes that we have proposed to the Microloan 

Program. Most of them are changes that would make the practice 

consistent with what the SBA is already doing or to give some 

added flexibility to the microenterprise development organizations 

who are working at the local level. And over time we have found 

there is a couple of impediments to what they are doing. They are 

fairly minor changes. We have been pleased to see that they have 

been incorporated in the draft I saw earlier. 

I do want to mention something about PRIME. PRIME is different than Microloan. The Microloan Program is for people who 

want to have a loan and need the technical assistance connected 

with the loan either before they get it and after they get it, whereas PRIME is for people who they are not ready for a loan yet. In 

some cases they may not need that capital. They have a kind of 

business that they don’t need a lot of capital, so they really just 

9

need the technical assistance. They can’t access the Microloan Program because the TA is really connected with the loan itself, and 

there are not other programs like PRIME out there that really deal 

with this constituency. There is also a requirement that 50 percent 

of the funding go to low-income people, which is different than 

other programs as well. 

And on a further note about PRIME, it was once a national program. It has been cut down to where currently only 15 States and 

the District of Columbia are even eligible to apply for the program. 

And currently only 12 of the States are actually getting any dollars, and it is only funded at $2 million. So it has really dropped 

down to what it once was. We would like to see it get back on. 

It is true that there are other Federal sources, like the Community Development Block Grant program, CDFI fund and some others that do fund microenterprise organizations, but they are not set 

up specifically for that purpose, and microenterprise programs are 

one of many that are eligible. So that is why these programs we 

are talking about today are so important, because they are really 

microenterprise specific. 

My final point is that the field of microenterprise got a lot of attention last year with the Nobel Peace Prize going to Muhammad 

Yunus and Grameen Bank. A lot of people know about the international work around microenterprise, but fewer know that we 

really have a vibrant, healthy microenterprise industry here in the 

United States, and that reauthorizing the SBA and these programs 

would go a long way to supporting that vibrant field, and I want 

to encourage you to do that. 

Thank you for allowing me to speak today. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Kelly. 

[The prepared statement of Mr. Kelly may be found in the Appendix on page 52.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Dr. Hector CorderoGuzman. Dr. Cordero-Guzman is an associate professor and chair 

of the Black and Hispanic Studies Department at Baruch College 

of the City University of New York and a member of the faculty 

in the Ph.D. programs in sociology and urban education at the 

CUNY Graduate Center. Dr. Cordero-Guzman is also research associate at the Community Development Research Center and is 

senior consultant to the Fundacion Chana Goldstein and Samuel 

Levis. 

Welcome. You have 5 minutes. 

STATEMENT OF DR. HECTOR CORDERO-GUZMAN, BARUCH 

COLLEGE, CITY UNIVERSITY OF NEW YORK 

Mr.CORDERO-GUZMAN. Good morning, Honorable Chairwoman 

Vela ́zquez, Ranking Member Chabot, distinguished members of the 

House Committee on Small Business. I apologize. I am a little bit 

under the weather. I usually sound even more annoying. 

Thank you for inviting me to testify about the SBA Microloan 

Program. I am Dr. Cordero-Guzman, professor and the chair of the 

Black and Hispanic Studies at Baruch College. Baruch College is 

the business school of the City University of New York and one of 

the largest in the country. We have over 15,000 students, 80 perVerDate 0ct 09 2002 09:17 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36109.TXT LEANN
10

cent of them majoring in business, and one of the most beautiful 

scenes you can see is in front of Madison Square Garden at the end 

of every academic year, you see thousands of students of all colors, 

shapes and sizes, grandmothers graduating from the City University. 

For the last 6 years, I have served on the board of directors of 

ACCION New York. ACCIONis the largest microlending organization in the United States with over 2,300 loans and $18 million in 

the portfolio and over 40 staff members. 

I am here to provide some testimony on the proposed changes to 

the SBA microlending program based on my research and my experience in the management of the microlending programs. Small, 

medium and large businesses utilize debt financing for a range of 

reasons, from securing working capital to making long-term investments. For microbusinesses, small entities with less than five employees, this is no less true, yet due to a combination of factors, including a smaller scale of operations, the product and demographic 

markets they serve, their often semiformal nature, their lower borrowing needs and the reluctance of formal lenders and financial institutions to work in these markets, microbusinesses do not have 

access to traditional sources of business financing. 

In the United States two broad and differing perspectives characterize the debate over microfinance. On the one side, one side argues there is a potential profit to be made from microlending, but 

for various reasons formal financial institutions do not see or seek 

out these opportunities, particularly in low-income and predominantly ethnic minority communities. The other side argues that 

due to the high cost of information, high risk of the loans, low returns on investment and unrelated resources, there is no money to 

be made on most of these types of small loans, and that microfinance will always need some form of State subsidy that should be 

justified on social equity, public benefit, cost-effectiveness or other 

grounds. 

Any progress towards a potential resolution on this debate depends on a better understanding of the actual cost of microfinance, 

a better assessment of the profiles of borrowers and the risks involved, and a development of a lending model with concrete parameters that can be adjusted and calibrated to local conditions and 

borrower characteristics and risk profiles. Once we have a realistic 

estimate of the transaction cost of microfinance and the interest 

rates that may need to be charged to cover its cost, we can be in 

a better position to understand their effectiveness, evaluate their 

needs and the levels of public and private subsidy, and analyze 

why private banks and related financial actors have or have not 

entered these markets. 

And the bulk of my testimony comes from a research paper that 

was published in January in the Journal of Small Business Management where myself and a theoretical physicist and another colleague, vice president at the time of ACCION, endeavored to try to 

estimate the actual cost of microfinance and compare the costs with 

what the industry was, in fact, charging. We used a model to calculate a value-neutral APR over the funding for the product. Very 

specific direct costs are taken, as outlined in our equation model, 

and then we present the model that basically estimates for three 

11

types of loans how much would you need to charge to be able to 

recover the cost of making a microloan. We define three characteristic products. One is a loan of $2,000 for a high-risk borrower, the other is a loan of $10,000 to a medium-risk borrower, and the third is a loan of $20,000 to a low-risk 

borrower. Our model estimates that in order for to you recover the 

cost of making a $2,000 loan to a high-risk borrower, you need to 

charge 34.7 percent APR to be able to recoup the money. For a 

$10,000 loan for a medium-risk borrower, you would need to charge 

17 percent to recover the cost. And for a $20,000 loan for a lowrisk borrower, you would need to charge 11.7 percent to recover the 

cost. 

We then looked at what microlending programs actually charged, 

and we found that it was significantly less than was required to 

cover the costs. Therefore, they have two options. They either close 

their operations because there is no money to be made, or they require some form of State or other subsidy to be able to continue 

their operations. 

Our paper basically concludes that in order for us to be able to—

we conclude that the industry is significantly undercharging in 

most of the loans it makes, and it is foundations and governments 

that are picking up the difference between what they are actually 

charging and what it costs for them to make the loans. 

ChairwomanVELA ́ ZQUEZ. Thank you, Dr. Cordero-Guzman. 

[The prepared statement of Mr. Cordero-Guzman may be found 

in the Appendix on page 55.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Dr. James Morrison. Mr. Morrison is president of the Small Business Exporters Association of the United States, which handles international trade 

matters for the National Small Business Association, a federation 

representing 65,000 small and medium-sized exporters. He was appointed by President George Bush to the Advisory Committee on 

Trade Policy and Negotiation, the U.S. Government’s senior trade 

advisory panel, providing the Office of U.S. Trade Representative 

with advice on U.S. Trade policies and specific trade agreements. 

Welcome, Dr. Morrison. 

STATEMENT OF DR. JAMES MORRISON, PRESIDENT, SMALL 

BUSINESS EXPORTERS ASSOCIATION OF THE UNITED STATES 

Mr.MORRISON. Madam Chairwoman Vela ́zquez, Representative 

Chabot, members of the Committee, thank you for inviting me to 

appear here today. I am James Morrison, president of the Small 

Business Exporters Association of the United States. SBEA is the 

Nation’s oldest and largest organization dedicated exclusively to 

smaller American exporters. We are also the international trade 

council of the National Small Business Association, serving U.S. 

small businesses across the Nation. We thank the Committee for 

its interest in assisting small businesses in international trade. 

Reauthorizing SBA provides a welcome opportunity to review the 

agency’s Office of International Trade, to strengthen it where it is 

succeeding, and provide it with fresh congressional guidance. SBEA 

supports the Office of International Trade. We think it does a good 

job. Perhaps its most impressive success is the volume of export 

12

sales underwritten by OIT’s export finance specialists located in 

U.S. Export assistance centers across the country. 

Export finance guarantees by SBA are important. In the U.S., as 

elsewhere in the world, commercial banks will not accept the foreign risk inherent in export sales without government guarantees. 

In fiscal year 2006, SBA guaranteed over $2 billion in export sales 

by small companies. Many of these transactions were for less than 

$100,000. What did it take for SBA to pull this off? It took $4 million and 17 people in the field. That works out to about $500 in 

export sales for every $1 that the taxpayers invested in the program, and over $120 million in export sales underwritten that year 

by each export finance specialist on average. 

This is a remarkable achievement. Those sales helped to create 

about 8,000 new high-paying American jobs, Main Street jobs. The 

companies that made those sales will keep on creating jobs at a 50 

percent faster clip than other businesses, a recent study shows. 

Just the taxes paid by the new employees will repay the cost of the 

export finance specialists many times over. 

In SBEA’s view, this program is by far the most cost-effective export promotion effort in the entire U.S. Government. Like the 

weather, everybody talks about the trade deficit, but not many people are as successful as OIT at actually doing something about it. 

We are very gratified that the legislation being considered today at 

last acknowledges the program’s remarkable success and builds on 

it. We hope these provisions pass. 

There are a number of other useful provisions in the bill as well. 

OIT will be directed to develop recommendations about small business for U.S. trade negotiators. This is a good idea. At present no 

one in the U.S. Government focuses on this issue in a full-time professional capacity. Small business needs and international trade 

ought to be addressed in a focused and systematic way if support 

for trade is to be strengthened on Main Street, so the Committee 

offers a valuable innovation here. 

The same can be said for the bill’s trade adjustment assistance 

provisions. Restoring the national consensus for a vibrant international trading system depends to a significant degree on reassuring the public that a safety net does, in fact, exist for those who 

suffer genuine import injury. SBA has the existing authority to 

provide loans for import injury, but this authority is rarely utilized. 

SBA needs to work with its banks and borrowers to determine why 

this is so and to improve its products and outreach to meet the 

need. 

The bill would also authorize OIT to work with small business 

ministries from other countries, to develop small business trade 

statistics, to join forces with those who are trying to protect the intellectual property of small businesses in international trade, and 

to help small businesses navigate trade disputes and utilize trade 

remedies. Importantly, the bill would also raise the loan limits for 

at least two of OIT’s three loan products. 

Having noted these desirable features of the bill, we would also 

draw attention to what is omitted, and that is authority for OIT 

commensurate with these new responsibilities. The Committee 

plans to take up this subject in a separate bill, and we certainly 

hope that bill squarely addresses this issue. 

13

Even now with OIT buried deep within SBA’s hierarchy, very few 

at SBA see international trade activities as a priority. Adding new 

responsibilities to OIT will worsen the situation unless, that is, 

Congress sends a very strong signal to SBA that it wants this 

treated as a priority. And the way to do this is to consolidate the 

agency’s international trade personnel and resources under OIT 

and to elevate the office within the agency so that it reports directly to the Administrator. Without such a strong backing from 

Congress, OIT will continue struggling to keep international trade 

on SBA’s agenda, and it will not be able to accomplish the ambitious new goals that the Committee seeks. 

Again, our thanks to the Committee and its staff for this forward-looking bill. That concludes our testimony. We would be 

happy to accept any questions. 

ChairwomanVELA ́ ZQUEZ. Thank you, Dr. Morrison. 

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

Appendix on page 69.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. William Gaskin, president and secretary of the Precision Metalforming Association, which represents the $41 billion industry that produces precision metal components and assemblies found in autos, appliances, 

computers and thousands of other applications. He serves as president and secretary of the PHA Educational Foundation as well as 

the association’s for-profit subsidiary. 

Welcome, sir.

STATEMENT OF WILLIAM E. GASKIN, CAE, PRESIDENT AND 

SECRETARY, PRECISION METALFORMING ASSOCIATION 

Mr.GASKIN. Thank you, Chairwoman Vela ́zquez, Ranking Member Chabot and members of the Committee. Thank you for holding 

this hearing today. My comments will focus on aspects of the SBA 

Trade Programs Act of 2007 other than the Microloan Program, 

which many have already addressed. 

The vast majority of PHA members are small businesses. They 

make component parts for a wide variety of industries. Virtually all 

manufactured products that are exported from the United States 

have metal components. So while many small companies may look 

at international trade and exporting with great skepticism, it can 

bring tremendous opportunities. 

Whether our industrial customers are domestic or overseas, cost 

is a key factor in determining whether the metal parts or assemblies are bought from an American manufacturer or an international source. Of course, quality and delivery are important, but 

the primary driver is cost. Metalforming is highly automated, a 

high-skill industry. Our largest operating expense is purchasing 

raw materials, in our case steel, like flat rolled metal, which 

amounts to 50 to 70 percent of our costs. 

Over the past 4 years our members have found their foreign competitors often supply metal components and assemblies or finished 

products cheaper than the cost of our raw materials alone in the 

United States. This clearly puts small American manufacturers at 

a disadvantage and seriously restricts our export opportunity. 

14

Hopefully the SBA Trade Programs Act of 2007 will offer some 

much-needed assistance. 

When we experienced 40 to 60 percent price increases in steel, 

as we did as a result of the government-imposed 201 steel tariff in 

2002 or a doubling of our steel costs in 2004, small businesses are 

placed in a squeeze. They simply do not have the ability to raise 

prices to their larger industrial customers like the automotive industry. 

Small manufacturers have been injured by the unintended consequences of our trade policies because they are not friendly to 

small companies in many cases. When the U.S. International Trade 

Commission determines whether to levy tariffs or taxes on imports 

of raw materials such as steel, aluminum or copper alloys, the current law bars it from considering the impact any decision would 

have on domestic industrial consumers of those products. The ITC’s 

view is that trade cases are entirely between importers and domestic producers of a product. American companies who use these 

products as their raw materials do not have standing in those 

cases. 

According to the Department of Labor Statistics, there are more 

than 9 million steel-consuming jobs in this country. Because of our 

outdated trade laws, none of these companies or their employees 

are represented in hundreds of cases at the Department of Commerce. That is why we support H.R. 1127, legislation that is offered 

by Representatives Knollenberg and Kind to provide domestic industrial consumers a seat at the trade remedies table. 

We also need a system to track small business imports and exports, which would provide a better snapshot of our industries. Due 

to current classification systems, the government does not adequately collect and report data on imports and exports. For example, the products produced by 1,700 companies, most of them small, 

in NAICS code 332116, metal stampings, which represents nearly 

100,000 jobs, appear nowhere in the HTS codes used by Customs 

and the Department of Commerce to track imports. While the Commerce Department has a robust program to accurately track some 

products, they do not track ours. This lack of data and analysis 

hinders policymakers and harms businesses and employees. 

A good example of this recent—a good example is the recent announcement by China that they would impose an export tax on raw 

steel. Well, that is good for the steel industry in the U.S., and we 

support the steel industry, but it harms smaller American manufacturers who are trying to be competitive globally in producing 

parts. 

Section 402 of the SBA Trade Programs Act seeks to establish an 

annual trade strategy for small business. Big Business is represented in our current trade policy, Big Labor is represented, but 

where is Small Business? We applaud this action. Fundamental 

currency misalignment by China and other nations provides a clear 

subsidy and places small companies in America at a competitive 

disadvantage. 

Section 202 of the SBA Trade Programs Act would address a 

growing problem for our members, intellectual property theft and 

lax enforcement by trading partners. Minster Machine Company, 

located north of Dayton, Ohio, recently discovered that a Chinese 

15

company is counterfeiting its metal stamping presses, frustrating 

efforts to export high-tech, high-quality machines to China. Small 

businesses often lack the financial resources to defend themselves. 

In addition to IP, participating in countervailing and antidumping cases is difficult in large part because they are so prohibitively expensive. Last fall I visited the Department of Commerce’s 

Imports Administration office with a member from Springfield, 

Ohio, who had lost some $2 million of their business to Chinese 

companies that were making steel pullies for the lawn and garden 

industry at a lower cost than the raw materials alone in the U.S. 

They decided not to pursue a trade case because the legal fees were 

way out of line with $2 million of their business, and yet it hurt 

the company desperately. 

When export opportunities do exist, our members have found 

barriers erected by foreign governments impact them. Small, medium-sized American manufacturers can only be globally competitive if the U.S. Government takes a more complete approach to its 

trade policies and remedies when foreign governments fail to abide 

by trade agreements, especially for small companies. 

Small manufacturers stand to benefit greatly from exporting, but 

in order to take advantage of these opportunities, we must have a 

domestic environment that will strengthen small businesses. 

Thank you very much. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Gaskin. 

[The prepared statement of Mr. Gaskin may be found in the Appendix on page 81.]

ChairwomanVELA ́ ZQUEZ. Mr. Hager, I would like to start my 

questions with you. 

The agency has demonstrated a declining interest in expanding 

its trade-related services. Loans from the international trade program dropped last year, and the number of specialists at U.S. export assistance centers fell by nearly 30 percent over the last 5 

years. The agency has also focused largely on export assistance, neglecting the needs of the rest of small businesses negatively impacted by trade. At the same time it has become critical that small 

firms incorporate trade into their business strategy. 

How can you come before this Committee and tell us to stay the 

course when we have so many communities suffering job losses due 

to overseas competition? 

Mr.HAGER. Madam Chairwoman, the initiative for international 

at the SBA, as a matter of fact, in the field staff, we are back up 

to staff that certainly since I have been there, we are back to those 

levels. We are committed to this cause. We spend a great deal of 

time in international operations. We support many conferences, attendance to development of the program. We are not taking our 

eyes off this initiative. We are largely in support of many of the 

issues that have been proposed today. We are anxious to work with 

you with a breakout of Subcommittee staff members from this 

Committee as well as the SBA to engage in meaningful discussion 

how can we come to agreement on many of these key initiatives. 

ChairwomanVELA ́ ZQUEZ. Dr. Morrison, do you think that the current efforts by SBA are sufficient to help small businesses prepare 

for this globalized economy? 

16

Mr.MORRISON. What SBA is doing so far is good and, as I indicated in my testimony, has been very beneficial. But as was noted, 

I think, in Mr. Hager’s statement, there are close to a quarter million small business exporters in the United States, and the SBA is 

touching on a very, very small fraction of them. 

Even in terms of the need for export finance, I think there would 

be general agreement amongst those who know the field that SBA 

is doing a very, very minor fraction of what it could be doing in this 

area where the demand enormously exceeds the supply. 

ChairwomanVELA ́ ZQUEZ. Mr. Gaskin, or even Dr. Morrison, you 

know, I am a teacher, so let us grade them in terms of assistance 

to small businesses regarding trade. 

Mr.MORRISON. I guess I would break it into two categories. I 

would give them something like an A minus for effort, and I would 

give them something like a gentleman’s C minus for resources devoted to the cause. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Hager, the country’s trade deficit has reached $800 billion 

annually, and China-U.S. surplus is up 84 percent since last year. 

This has resulted in the loss of many small U.S. firms in the manufacturing industry and increasingly in services and agriculture sectors. Entrepreneurs, however, could play a critical role in lowering 

the trade deficit. The trade deficit is a national crisis, and everybody should play a part in reducing it. You say USTR, UCA, the 

Department of Commerce, USDA, it is everybody’s responsibility 

but SBA. The current administration always talks about the importance of personal responsibility. When is the agency going to take 

responsibility for the current poor trade performance? 

Mr.HAGER. I would like to point out that 2005 the agency was 

responsible for and helped support almost 3,000 loans, 2,950 loans. 

In 2006, that number rose to 3,304. Is that taking care of the 

world? Absolutely not. But when we have other departments and 

functions in the government, it behooves all of us to work closely 

together. 

ChairwomanVELA ́ ZQUEZ. So let me give you your own facts. Over 

the last 5 years the agency has drastically cut UCA staff and eliminated its budget. Tell me, how is that taking responsibility? 

Mr.HAGER. The budget since I have been there, the number of 

USEAC members in the field is currently at 16. I don’t think at 

any time—I have been there 2 years. I don’t think at any time I 

have been there that number has been greater than 16. 

ChairwomanVELA ́ ZQUEZ. So let me ask you this other question. 

Since 2003, there have been vacancies in SBA trade finance specialists assigned to U.S. export assistance centers located in New 

York City and New Orleans. New York City and New Orleans, 

these are both significant ports. While the latter is clearly in need 

of economic assistance as a result of the Katrina disaster, can you 

explain why the agency will neglect to fill such critical positions? 

Mr.HAGER. We feel that the coverage throughout the country in 

total is being covered by the 16 USEAC members we have today. 

ChairwomanVELA ́ ZQUEZ. Sixteen for the entire country. 

Mr.HAGER. We have in addition to that 68 district offices 

throughout the United States with numerous members in each office to assist and help us in this initiative. 

17

ChairwomanVELA ́ ZQUEZ. Do you agree with me, New York City 

and New Orleans, two critical ports, and then New Orleans, this 

is the administration’s commitment to help the victims of Katrina 

to recover? 

Mr.HAGER. Let me break out. I have been to New Orleans a 

number of times. 

ChairwomanVELA ́ ZQUEZ. No. This is not about New Orleans. 

Mr.HAGER. May I answer your question? The answer that I 

would like to subscribe to and present to you is that in New Orleans we are taking goods and products from around the United 

States that ends up in a port for shipping. We don’t believe that—

we firmly believe that we have New Orleans covered. We do not believe that adding more USEAC people in New Orleans would help 

the production of goods and services throughout the country. It 

would at best help the shipping of those goods and services out of 

New Orleans. 

ChairwomanVELA ́ ZQUEZ. So let me ask Dr. Morrison, do you feel 

that one of the major problems that we have is that while export 

is increasing, small exporters are not benefiting from it because 

they don’t have the financing? And you are telling me that two specialists that are important in two key ports are not necessary? 

Mr.HAGER. I am saying that we—

ChairwomanVELA ́ ZQUEZ. Dr. Morrison. Mr. Gaskin. 

Mr.MORRISON. With all due respect for Mr. Hager’s point of view 

on this, I am afraid I would disagree. If you look at the output of 

the export finance specialists, it comes to on average about $120 

million in export sales underwritten per year. I think that $120 

million would be enormously beneficial for New York City and New 

Orleans. I do not know why those positions have been vacant for 

so many years. I strongly believe they ought to be filled, and I 

think it is an important part of the New Orleans recovery from 

Katrina to do that. 

ChairwomanVELA ́ ZQUEZ. Mr. Gaskin. 

Mr.CORDERO-GUZMAN. Thank you. 

I think that—as I mentioned in my testimony, there are many 

small companies, manufacturers who could use help, financial help 

exporting. But they also need financial help in the U.S. dealing 

with the trade bureaucracy. The SBA could be a remarkable advocate for small manufacturers who are trying to find their way 

through the ITC and the USTR requirements, and especially when 

it comes to the antidumping/countervailing duty areas, but it is 

prohibitively expensive for any company to do that. So financial 

help there would be very helpful. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Gaskin. 

Mr. Hager, you indicated that the financing sections of the bill 

may violate international dumping rules. However, SBA currently 

administers a loan program which aids small business, and I quote, 

confronting increased competition with foreign firms, and I quote, 

are injured by such competition. The legislation that we have before us simply builds on this existing initiative. We are not creating 

new initiatives. We are adding layers. We are expanding the size 

of the loans. So how could you come before the Committee and say 

that we are in violation of international dumping rules? Yes. 

18

Mr.HAGER. Madam Chairwoman, I don’t pretend to be an international attorney or have—please let me finish. 

ChairwomanVELA ́ ZQUEZ. Yes. 

Mr.HAGER. We believe and we have been advised that it may be 

in conflict with WTO. It is up to WTO to make that final determination. We are raising it as an issue to be discussed. We are not 

saying it absolutely will. We have been told it may. And we want 

to bring it to the Committee’s attention so it can properly be addressed. 

By the way, I just want to make one quick comment. New York 

is still our largest producer of loans in international trade for the 

SBA. 

ChairwomanVELA ́ ZQUEZ. Mr. Hager, I will ask you to go and revisit the testimony and the statement that you made regarding violation of WTO. Don’t come here, sir, and make such accusations. 

And I have to tell you after you finished reading your note that I 

don’t mind having thoughtful disagreement here. That is part of 

the deliberations that needs to take place here. But I do not—I 

really resent the fact that you come here and say—and make a 

statement that this is in violation, the same thing you did when 

we were considering the lending bill of Mr. Chabot and Mr. Sarbanes. You said that it violated the Credit Reporting Act. I presented you with a copy of the Credit Reporting Act, and you were 

unable to point to the accusation that you were making. So if midlevel staff is going to come here and not provide the facts, then I 

will request from now on to have the Administrator to come before 

the Committee. 

Mr.HAGER. May I respond to you? 

ChairwomanVELA ́ ZQUEZ. Yes. 

Mr.HAGER. Number one, I said in my testimony just a few minutes ago that it may be. I did not say—I am not an international 

attorney. I cannot absolutely tell you. I raised it as an issue for us 

to deal with, and I think we should deal with it. Let us investigate 

it and get our staffs together and evaluate it to determine—

ChairwomanVELA ́ ZQUEZ. Are we creating a new lending program 

under the bill? Are we? No. 

Mr.HAGER. But what I am—I am raising it as an issue. I thought 

that was the purpose of our comments. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Yes, Mr. Gaskin. 

Mr.GASKIN. If I could just add a comment. You know, the U.S., 

the administration approach seems to be in flux on the WTO. 

There is areas like this where loans maybe are ruled illegal against 

or they think they might be illegal with WTO rules. But why don’t 

we let the WTO figure that out? 

ChairwomanVELA ́ ZQUEZ. Well, also let me add, Mr. Gaskin, how 

many complaints did this administration have filed before the 

WTO? 

Mr.HAGER. I don’t know. 

ChairwomanVELA ́ ZQUEZ. You don’t know? Let me tell you: Three, 

three so far. 

Mr.HAGER. Yeah. 

ChairwomanVELA ́ ZQUEZ. What about the manipulation of the—

Mr.HAGER. There have been complaints filed. 

19

ChairwomanVELA ́ ZQUEZ. I will go to Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. Just a few questions. If 

you would like to pour yourself a glass of water, Mr. Hager. 

Mr.HAGER. I am fine. It is not personal. 

Mr.CHABOT. In any event, let me follow up on a couple of things. 

First of all, Mr. Kelly and Mr. Hager, relative to the Microloan program, Mr. Kelly you made the point in your opinion that it is complementary, not duplicative. And I think there is some disagreement. The Microloan program I am referring to, Mr. Hager’s point 

of view and Mr. Kelly, I would be interested to hear a little bit of 

discussion from both of you on that particular point. 

Mr.KELLY. This is specifically the duplication between Microloan 

and PRIME? 

Mr.CHABOT. Yes. 

Mr.KELLY. Is that what you are referring to? They serve different 

people. First of all, the PRIME is more targeted to low-income folks 

than Microloan is, although Microloan does certainly serve mostly 

low-income people. The difference is entrepreneurs who need capital versus those who don’t need capital. And if you don’t need a 

loan, at least right now, PRIME is a program that was really created to help those entrepreneurs. 

If you do need a loan, the Microloan program is for you. And 

then you can also get some technical assistance through that, but 

it is specifically for people who need a loan. If you don’t need a 

loan, you can’t go to a Microloan intermediary and say, give me 

technical assistance but not a loan. You have to have both together. 

If I could just give a little background, the Microloan program is 

older than PRIME. And when our industry, our field, in the late 

1990s was polled by—we were told that the biggest need out there 

among the entrepreneurs that they were working with was the program that became PRIME. It was to help the entrepreneurs who 

did not at that time need a loan but they only needed technical assistance. 

And, in fact, what is different here in the United States versus 

Microenterprise abroad is that abroad is very lending-focused. That 

is mostly what Grameen Bank does, almost all of it. Here, probably 

half of our groups don’t do any lending at all; they only provide 

technical assistance to entrepreneurs. 

Mr.CHABOT. Mr. Hager, did you want to comment on any of that? 

Mr.HAGER. I don’t know that there is anything I could add other 

than our whole position on PRIME has been we have programs of 

SCORE, SWBC, SDIC, the district offices. We think that there is 

some duplication that can be corrected. But I agree with so much 

that you said. TheMicro-programs certainly emerged before you 

needed the PRIME. And once it was there, let’s take a look at 

PRIME to help with the number of loans and help those small 

emerging companies deal with the issues they have to deal with to 

enable them to apply to the loan and, more importantly, get it. 

Mr.CHABOT. Let me turn to you, Ms. Darien. Again, in the programs that we are referring to this morning, particularly the 

Microloan program, you mentioned that a lot of folks when they are 

starting up or expanding a business, rather than utilize one of 

these loans because of the availability of them, they end up either 

going to personal savings or borrowing money from perhaps relVerDate 0ct 09 2002 09:17 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36109.TXT LEANN
20

atives—I don’t know that you mentioned that, but that is something that occurs. You mentioned they use their credit cards. If 

they use their credit cards and if they pay it off every month, they 

are not paying an interest rate. But if they are not, they are paying 

anywhere from 25 percent and up. 

Could you discuss the impact that would have, and why these 

are so important to businesses starting up, or relatively small and 

expanding? 

Ms.DARIEN. We did a poll—in fact I included it and attached it 

to my written testimony—on financing for microbusinesses so you 

would get a good snapshot of everything they are using in terms 

of their finances. But particularly credit cards, personal savings, 

and home equity loans were their main source of financing to start 

up their business. And in terms of ongoing financing, it was personal savings and credit cards. 

And the big issue, particularly with credit cards and lines of 

credit is, again, that interest rate. What is occurring with credit 

cards is that they are paying minimum balances with microloans, 

they get affordable rates due to the subsidy, the backing, they get 

the size loan they need. It creates stability within their financials 

for their business versus credit cards, which puts an undue burden 

on their business. 

With personal savings, as mentioned, should they have an incident, whether there is an economic downturn—which is a perfect 

example—and all of a sudden they have liquidated their personal 

savings to go into their business. Or if there is a personal situation—for example, a medical illness occurs and they have no more 

personal savings, it is all invested in their business—these are the 

persons you will find filing for bankruptcy. 

So it is a big issue in terms of how someone is going to start up 

and finance their business. That is why the Microloan program is 

so important. It offers funding at affordable rates and also offers 

that technical assistance to teach the microbusiness owner how to 

properly apply for the loan and how to use that money to the best 

of their interest, and supports them throughout the whole repayment of the loan. 

Mr.CHABOT. Thank you very much. 

Dr. Guzman, if I could turn to you next, you had made the point 

that in the study that you did, when you are talking about the 

smaller loans and depending on the three categories that the loans 

were in, that they cost anywhere from 11 percent—the actual cost 

of the loan—to 30-some percent, and made the point that what that 

ultimately says is that it is being subsidized by somebody, and that 

is essentially the State or the government in some form, which is 

essentially the taxpayers that are funding that. 

Would you talk to, maybe, the overall broader either public good 

or the reason—the justification for the taxpayers or the government, or whatever terminology you want to use, picking up that 

thing that is necessary and what that ultimately does for the overall economy and employment, et cetera. 

Mr.CORDERO-GUZMAN. There are two points: 

One on the cost of providing the loan and understanding why it 

takes 35 percent, for example, for the small loan and what do you 

21

need to do to be able to put that money out there, the amount of 

staff time and others. That is one end of it. 

The subsidy is picked up mostly by a combination of State, foundation funding, individual donations. It is up to the individual nonprofits that are the members of the Association for Enterprise Opportunity. Each of the members has a particular funding proportion 

that helps them cover the gap between what they are charging and 

what it actually costs them to do the work. 

It is not only the government that covers that. In the case of 

ACCION New York, for example, it receives very little government 

money and most of that is covered by foundation support. On the 

order of $700,000 per year that has to be raised from numerous 

foundations. 

The second part of the question, more about what do we get in 

return for that investment—it is not a question that in the paper 

we necessarily analyzed. The question we wanted to get at in the 

paper was, why are banks not giving out these loans? And we had 

two options: that they are very smart and they realize that there 

is no money to be made on these loans, or that they are very stupid 

and they are not taking advantage of opportunities. 

And what we found was that the banks in fact are relatively 

smart, because it costs them, they are paying a bank loan officer 

$100,000 to evaluate a $2,000 loan? How much does it cost 

Citibank to pay someone just to look at that piece of paper? We 

found for a $500 loan it is easier to flip a coin than to pay someone 

to begin to look at the paperwork. That is what we wanted to get 

into: Why is it that banks are not providing this financing? And the 

answer is because for the very small amount for the somewhat 

risky borrowers, it is a very risky thing to do. 

The second side is, is that investment worthwhile? We in the 

paper did not look at what happens to the microbusinesses once 

they received the loan. We have a lot of other evidence from the 

businesses themselves and from others that they benefit significantly from receiving that access to financing. 

In order for a business to survive it needs three m’s: money, 

management and markets. And we believe that the small businesses are finding markets very well. The have to some extent—

and the TAs are designed to give them the management skills they 

need to grow their businesses. The biggest obstacle that they reported is always the money and the expense it costs them to get 

that money. 

The credit cards, 25 percent. We interviewed people that were 

borrowing from loan sharks at a rate of 20 percent per month. The 

most common form of payment for the shark was to pay the interest rate every month until you have the money to pay the entire 

lump sum. It ended up in some cases to be 240 percent a year. 

While we did not look at evidence of the positive social businesses of microlending, there seems to be plenty of evidence that 

the small businesses do create jobs for the owners of the business 

and for others around them, and do provide income to the family 

members. Whether it is worth the social investment is up for you 

who are lots smarter than I could ever be to decide that. 

Mr.CHABOT. I agree with everything except the last point that 

you made. 

22

Madam Chair, rather than go to Dr. Morrison and Mr. Gaskin, 

I yield back the balance of my time to be fair to other members. 

ChairwomanVELA ́ ZQUEZ. Mr. Shuler. 

Mr.SHULER. Madam Chair, thank you. To Ranking Member 

Chabot, it is almost my questions exactly. I will have to come up 

with some new ones. 

Dr. Guzman, obviously, as you have indicated, a tremendous 

amount of expense that banks would have in order to be profitable 

to review these loans. And we talk about loan sharks. But don’t you 

think we could agree that the SBA is not in a for-profit organization? 

Mr.CORDERO-GUZMAN. Correct. 

Mr.SHULER. Not having the profit, I mean, if I look at the people 

who are looking at—we talk about 50 percent are almost in poverty 

level or below the income necessary to be able to qualify for some 

of the banks and to go get a $50,000 or $100,000 loan. It is much 

better to get a helping hand than a handout. And so thank you for 

your testimony, because I think it really gave us a true sense of 

who the people that we are dealing with are, that the SBA should 

be dealing with, and, probably more important than anything that 

you talked about, the loan sharks that are being substituted by the 

lack of work that the SBA has done. 

And so I want to commend you on your testimony and what you 

have been able to give us and provide us a truly inside of what is 

going on. 

And to Mr. Kelly, I would like to hear from you, or Ms. Darien, 

is talk about some people that have been turned down and why 

they have been turned down on these microloans. And tell me 

about a success story. 

Mr.KELLY. Thank you, Congressman Shuler. I can tell you about 

one. There is a woman whose name is Susan Brown in the Denver, 

Colorado area, and she had an idea. She went to a bank and asked 

for a loan to start up a business. And she didn’t have a great credit 

score, I guess, and not enough collateral and some other issues, 

and they basically said, no, we are not interested. 

She then went to the local Micro Enterprise Development Group 

who gave her a loan, and she took the money and went to a trade 

show. And she has a product called a Boppy. Probably a lot of the 

women know about it. It is for newborns. It is a U-shaped pillow. 

You know what I am talking about? That thing has been selected 

as the best baby shower present in the United States several years 

running. She has a multimillion-dollar company in Colorado that 

employs 25 people or more, and she couldn’t get a loan from the 

bank. If it were not for the Microloan program she wouldn’t exist. 

She would, but the company would not exist. 

She has said several times that she would be happy to come and 

testify. It has never worked out with her schedule to do that. Because if it wasn’t for the Microloan program I wouldn’t be here, I 

wouldn’t be where I am right now. 

And there is a guy who is not that far along, Victor Valdez in 

southern Arizona. He got a loan for a plastic thing that you put 

around your trash can that helps holds your trash bag up. And he 

has a contract to sell those in the Ace Hardware Stores throughout 

23

the Tucson, Arizona area. If it does well, there is a chance for him 

to go statewide. 

There certainly are a lot of examples like them. Those companies 

pay a lot of taxes, employees are paying taxes, employing people 

who were unemployed, in some cases, before. So there is a lot of 

benefit coming around as a result of these. Some of them are small 

and want to remain small, but you have some of these big stories 

as well. 

Ms.DARIEN. In the testimony that I submitted, I will be glad to 

read a quote from our member who received an SBA loan and had 

substantial trouble getting lending from a bank due to lack of collateral and credit score. 

NASE member Mark Zoller, President of Zoller’s Outdoors Odyssey’s Inc. He said, and I quote, ′′My father started a white-water 

rafting business 34 years ago and he and the operation was simply 

tired, and at end of his tenure he had a great vision for how he 

would like the company to expand, but not the energy or the capital. I applied and received an SBA loan which enabled us to purchase and build a new facility and expand our offerings. In the 6 

years since, we have more than doubled the business and now have 

30 white-water guides on staff along with several support staff. Six 

years ago our annual revenue was $200,000. This year it looks like 

it is going to be $550,000. The SBA kept our family operation alive 

and gave us the opportunity for great achievement.′′ This is a perfect example of one of our members. All of our members are microbusiness, 10 or less, and this is how these loans help. 

A majority of them have a lot of difficulty getting loans through 

traditional lending institutions. In fact, our association has gone to 

a whole series of national banks requesting to start a loan program 

particularly for our members, and they all turned us down. And we 

are a national association with 250,000 members. 

So we ourselves had to create a grant program. We currently 

have the NASE business development grant program in existence. 

We give out $200,000 a year, $5,000 grants to our members, but 

we were unable to start a loan program. Banks refused to work 

with us. 

Mr.SHULER. Thanks. The reason I ask this, Mr. Hager, is one 

simple fact: The people need help. They are asking for truly a helping hand, not a handout. And we can take these testimonies by the 

people here and take them back to the administration and truly 

work for the common good. I mean every time someone from the 

Small Business Administration comes in here, it is the same process that we go through. You want to continue to cut and cut, and 

it is truly the people who are making the differences in our small 

businesses. 

North Carolina lost 78 percent of its textile industries. 78 percent, most which have now become small business owners. And we 

have to keep that in mind. They are not asking for a handout. They 

are asking for a helping hand. 

ChairwomanVELA ́ ZQUEZ Mr. Gonza ́lez. 

Mr.HAGER. May I make just a comment? You know, I appreciate 

your comments. I worked in the textile industry in Alabama. The 

company now no longer exists. The one reason I am up here now—

Russell Athletic. We are in support of many of the programs to exVerDate 0ct 09 2002 09:17 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36109.TXT LEANN
24

pand micro. I mean, there is very little we have any issues with 

at all. We applaud the efforts being made to expand this program. 

The export business, the same thing. There are so many issues, 

I wish we could focus more on the commonality, the things we 

agree with, as opposed to the few things we don’t. But clearly the 

microlending programs, the testimonials here are so impressive 

and we again are very supportive of the majority of what has been 

proposed here today. We don’t disagree. 

Mr.SHULER. Thank you. 

ChairwomanVELA ́ ZQUEZ Mr. Gonza ́lez. 

Mr.GONZA ́LEZ. Thank you very much, Madam Chairwoman. I am 

going to be asking a question based on testimony by Mr. Kelly, and 

the question will be going to Mr. Hager and Dr. Cordero-Guzman. 

This is the statement from Mr. Kelly—this is on the Microloan program. 

Raising the interest rate program on the Microloan program will 

make this program much less appealing to microenterprise development organizations. The value of the program is that it allows 

Microloan intermediaries to keep interest rates down to their borrowers. By raising the interest rate to the intermediaries they will 

be forced to raise interest rates to the borrowers, which will create 

an economic hardship for them and make it more difficult for them 

to grow their businesses. This strategy is counter to the original 

reason that Congress created the Microloan program. 

And of course we started off with the testimony by Mr. Hager as 

to why it is so expensive and such. But this is a very troubling 

statement made by Mr. Kelly. 

And so I would start with Mr. Hager. And do you agree or disagree with what Mr. Kelly believes is going to be the outcome of 

your proposed rule change? 

Mr.HAGER. I respectfully disagree only from the standpoint if you 

look at the interest rates in the nonsubsidy we have in the traditional 7(a) program, and look at the growth that has doubled in the 

last 4 years, I believe would support the fact that we don’t believe 

that we should be carrying the same subsidy as we are today in 

the Micro-program. 

Mr.GONZA ́LEZ. All right. I think Dr. Cordero-Guzman, his work 

and his paper that he prepared, I am not sure if he is going to 

agree or disagree—I will just ask. How do you view Mr. Kelly’s testimony? 

Mr.CORDERO-GUZMAN. The type of subsidy that is required depends on the borrower and the characteristics of the borrower. The 

problem I am having with the discussion is that we are lumping 

all the different types of borrowers in the same basket. You would 

want to, for a value-neutral interest rate, want to change the same 

to all borrowers. You want to break it down a little. And what we 

did not want as a result of our paper was to have the better borrowers subsidizing the worst borrowers. 

We wanted to find out what is the fair price you need to charge someone who is requesting $20,000 that has a good record, and 

that is 11 to 12 percent, versus someone who is asking for $2,000 

that has not such a good record, which is 34 percent. So the answer 

as to what you should charge and how much you should subsidize 

depends on who the borrower is. 

25

Now, if you cut the subsidy, it is going to be passed on to somebody. The groups that administer the programs are nonprofit organizations; they do not have anywhere to pull the money from. They 

would have to raise it from a foundation or local government or 

somewhere to cover the spread, or pass it down to the borrower. 

And there is a moral question as to whether you do or don’t want 

to do that. 

And in the literature there are arguments that—the credit rationing literature—there are arguments that there are reasons why 

you don’t want to set the interest rate way too high, because you 

would only attract people who can pay an interest rate or would 

want to pay an interest rate that is exorbitant. They are not the 

best-quality people. They know more information about themselves 

than you do. 

So my answer is it really depends on the borrower. What we 

don’t think should happen is certain borrowers subsidizing other 

borrowers. We believe that each category of borrowers should get 

the interest rate they deserve, and the spread should be covered by 

somebody or the loan will not be made. 

Mr.GONZA ́LEZ. Which is the biggest fear. This is testimony from 

Mr. Hager—we propose eliminating the cost to the taxpayers for 

the Microloan program. Currently, the intermediaries pay less than 

the 5-year Treasury rate to SBA for their loans. We are proposing 

they pay just over 1 point more than that rate, still a very favorable rate. This would bring their interest rate to 5.99 percent in 

comparison to the average rate of 10.5 percent charged to microborrowers. 

In my way of looking at it, I think you do place a lot of borrowers 

in jeopardy because costs will be obviously passed on in the greater 

cost to the intermediary. And I think by your own testimony you 

indicated, look, I mean you have to subsidize. Because if you have 

an officer—loan officer looking over a $5,000 loan application as opposed to a $500,000 loan, good business sense would tell you that 

you can’t spend any time on the 5,000. That is why we have these 

programs. 

I do want to get into the export business. I think it is very, very 

interesting. Mr. Hager, I don’t question your good intentions, but 

this is where I am going to disagree with you and just about every 

administrator that we have had from SBA. I know there may be 

other departments and agencies that should have an interest in the 

small business exporter. But that is not their charge. But the 

Small Business Administration, it is your charge. And that is the 

difference. 

We have had someone from the United States Trade Representative’s Office sit exactly where you are sitting today and I will tell 

you, after her testimony everyone here—I don’t care if it is Republican or Democrat, conservative, liberal or whatever—had to come 

to the same conclusion: that they don’t have anybody addressing 

the interests of the small businessman and -woman exporter. They 

just don’t. And there was no coordination, nothing within the Department of Commerce, nothing within the Trade Representative’s 

office. 

26

And so I keep emphasizing to the Small Business Administration, this is your mission. This is your goal. This is your charge. 

This is your mandate. 

You question why we are now going to do something on the export side and you question whether it is going to impede or diminish or in any way jeopardize what is going on out there with the 

World Trade Organization, the United States Trade Representative. I am going to tell you at this point, I am not sure we care. 

Someone has got to do it. And we are going to have to push you 

guys in that direction. 

Is there going to be conflict? I will tell you why the others agencies and departments are putting that bug in your ear, that there 

may be a conflict and overstepping and such. Because they really 

don’t want you involved. They really don’t. They are ignoring the 

situation. They don’t want in any way to invest the resources to address this issue. It really is the Small Business Administration that 

has to initiate this. There is not even coordination with our Trade 

Representative’s Office, and, to a great extent, the whole Department of Commerce. 

So I don’t have a question at this time. Thank you very much, 

and I yield back. 

ChairwomanVELA ́ ZQUEZ time has expired Mr. Ellsworth. 

Mr.ELLSWORTH. Thank you, Madam Chair. This is very informative. If Mr. Gonza ́lez wants my time, I would be happy to give to 

him. I have learned a lot. I don’t have any questions. 

ChairwomanVELA ́ ZQUEZ Ms. Clarke. 

Ms.CLARKE. Thank you very much, Madam Chair. I want to just 

sort of direct my comments to Mr. Hager as well. And you know, 

principally we do agree with the mission and what has been said 

here today. You talked about it is the small things. Let me just say 

to you that it is the small things that are the heart of the problem 

here. What it has done is created a chasm of economic disparity. 

And the SBA has become a partner in that, by these cuts and by 

not recognizing the nuances of what microbusiness and microenterprise is all about. 

I would want to recommend to you that you really take an indepth look at Mr. Cordero-Guzman’s paper, because it truly reflects 

and gives a real, real-time window into the challenges that our 

microenterprises are facing. And the value in them to constituencies like mine in Brooklyn, New York, where you have growing 

interests and expertise in being entrepreneurs, but denial of capital 

to get it going. We rely on those small entrepreneurs to be our future corporate entities, and when we deny them the opportunity to 

take that step, when we are not in the position to take that leap 

of faith with them at the United States of America, we are doing 

ourselves a disservice. 

And so I think the energy that you feel coming from the membership here—I am a new member and these folks got me going—you 

really should take another look at this. We need your assistance in 

getting these businesses the assistance that they need. I come from 

a constituency where immigrants are a big part, second generation, 

they are coming with entrepreneurial ideas. They come from an environment that inspires entrepreneurship. They become the emVerDate 0ct 09 2002 09:17 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36109.TXT LEANN
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ployers of people who have been systemically unemployed in our 

communities for a very long time. 

So you are going to feel the pressure, you are going to feel the 

heat. These are individuals who also have connections to their 

homeland, so exporting business is almost a natural for them in 

terms of the things that they can create based on the knowledge 

and innovation that we have in this Nation. 

I think that Congressman Gonza ́lez hit on the point that I wanted to make with respect to the percentage point that you are requiring of intermediaries. I would like to recommend, Madam 

Chair, that something be submitted in the form of a report of how 

this proposal would impact small businesses, showing the data and 

how they would basically make loans more available. Because this 

is the argument that we are hearing. And I would like you to, prior 

to doing that report, read Mr. Cordero-Guzman’s report and see if 

you are really on the mark. 

I don’t like the fact that there is some speculation involved here, 

and we need to get to the facts so that we can really go to the heart 

of the challenges that our businesspeople are facing at the 

microlevel. 

Thank you very much, Madam Chair. 

ChairwomanVELA ́ ZQUEZ thank you. 

I would like to ask some more questions and then I will go to 

you. Congresswoman Clarke just mentioned about the fact that 

there is some speculation but there are not facts. So let me give 

you some facts and see what type of response you have, Mr. Hager. 

You heard from the witnesses that are seated next to you that 

Microloan borrowers cannot qualify for 7(a) loans and community 

express loans. Their scores, if they have, are in the 500s, whereas 

the 7(a) program frequently requires 680 and above. Do you believe 

that borrowers who normally use microloans could qualify for 7(a) 

or community express loans if their credit scores are in the 500s? 

Mr.HAGER. You know, the decisions on credit are made by the 

lenders for the most part. We don’t tell the lender who qualifies 

and who does not qualify. 

ChairwomanVELA ́ ZQUEZ based on data that you have seen—because I suppose when you come here with a proposal like that, that 

you have seen evidence and facts that will tell you that there is no 

risk of denying capital to microborrowers because their score will 

enable them to go and make a 7(a) or business express loan. Have 

you seen that data? 

Mr.HAGER. A couple of things. I have seen data to say that moving the loan structure from 3.7 to 5.9, we did not believe, would 

make a major impact to the intermediary. The intermediary would 

then charge the borrower. 

But I want to emphasize here throughout, and if the Committee 

would please listen to me, we are the advocate of these programs. 

I can’t testify what happened 10 years ago, but I am a public servant that is passionate about this program. 

Last year was an all-time record overall for SBA loans. We are 

advocating loans by the day to get more and more made. We don’t 

fundamentally disagree with what has been proposed here in legislation. It is some of the fine-tuning issues that we are wanting to 

discuss with you—

28

ChairwomanVELA ́ ZQUEZ it is a simple question, Mr. Hager, and 

you don’t answer my question. You were a loan officer weren’t you? 

You were a banker. 

Mr.HAGER. I spent a lot of years—yes. 

ChairwomanVELA ́ ZQUEZ tell me, if a borrower goes to your bank 

with less than a 500 credit score, would you approve a loan? 

Mr.HAGER. It would be based on a lot of conditions with that borrower. I would not as a banker say—

ChairwomanVELA ́ ZQUEZ what is the complaint that we hear over 

and over and over from small businesses across this country? The 

problem is access to capital, and banks not taking an interest in 

their loan applications because they are too small. 

Mr.HAGER. Yes, ma’am. And our loan products hit an all-time 

record in 2006. We did more loans than in the history of the SBA. 

So far, year to date, we are ahead of last year, I might add. 

ChairwomanVELA ́ ZQUEZ Mr. Hager, you said that the technical 

assistance part should be provided by the SBDCs and the Women’s 

Business Centers; that they should be providing the technical assistance component to the Microloan program. Can you tell me 

what is the estimated cost to the SBA for the SBDC and Women’s 

Business Centers to take on this additional duties? 

Mr.HAGER. We don’t believe it would require any additional 

budget. We would use the budget we have. We think it is more 

than adequate—

ChairwomanVELA ́ ZQUEZ. You are giving more responsibility to 

the Women’s Business Centers and to the SBDCs but you are not 

requesting—

Mr.HAGER. We think it is well within their capability to do this, 

yes, ma’am. Without exception. 

ChairwomanVELA ́ ZQUEZ we have the Small Business Development Centers come here and testify that their counseling hours 

dropped because they don’t have the resources. Were you aware of 

that? Did you read the Congressional Records of the hearings that 

we conduct? 

Mr.HAGER. I can just say with great confidence, without a doubt, 

that we can accomplish this training with the resources we have. 

We have a very strong budget there. 

ChairwomanVELA ́ ZQUEZ sir, the administrator and the previous 

administrator came before this Committee when—the whole 

Katrina crisis—to tell us that they were doing more with less. I am 

sure that you know that you cannot do more with less. 

Dr. Cordero-Guzman, our bill would allow more of the technical 

assistance grant money to be used for preloan counseling or what 

you referred to as the loan origination screening. The SBA opposes 

more resources for this. I ask you in a relation-based lending 

model, isn’t it wise to allocate sufficient resources to screening in 

order to increase the success of the Microloan program, that by 

itself has proven to be a success, when you have a 1 percent default 

rate? 

Mr.CORDERO-GUZMAN. What I do know is that the typical microlender that comes in does not have the type of paperwork that a 

banker would expect a business to have in order for a loan to be 

processed. Which means that as part of the job of fulfilling their 

duty of giving out the loan, the microlenders have to be—have to 

29

help the business owner get their own paperwork together, and 

that adds to the costs of providing the loan. 

And in our model we use the cost of providing that assistance 

and factor it into the interest rate that would need to be charged 

to recover the cost. Because we know that these types of businesses 

don’t have the type of recordkeeping and paperwork that more formal businesses that have CFOs and comptrollers would have. So 

it is almost a condition of completing the application that the paperwork has to be put together, and that requires someone’s time. 

ChairwomanVELA ́ ZQUEZ Ms. Darien, would you like to comment? 

Ms.DARIEN. I think it is essential to have any kind of assistance, 

particularly prior to applying for a loan through the entire development, particularly for our microbusiness members. They are an expert in their field, in their industry. I agree with the doctor that 

a lot of them don’t have the paperwork or understand what is required to be an attractive borrower to a bank. 

I think, again, the credit score issue is another factor that 

would—that particular provision would greatly assist microbusinesses in preparing on how to be a good borrower. And once 

they got through the Microloan program, it would assist them down 

the line to being prepared if they wanted to get ongoing financing 

maybe through a traditional lending institution. So it is an essential component that we support. 

ChairwomanVELA ́ ZQUEZ Mr. Chabot. 

Mr.CHABOT. Dr. Morrison, let me ask you: Does your trade association have members who export their services as well as their 

goods? 

Mr.MORRISON. Yes, we have both service and product exports. 

Mr.CHABOT. More goods, I would assume, but you do both. 

Mr.MORRISON. Yes, we do both. 

Mr.CHABOT. That being the case, is it harder for small businesses 

to access the export market in services rather than goods? And 

would the proposed legislation help those selling services to gain 

greater access to the export market? 

Mr.MORRISON. Well, as to the first part of your question, I think 

it depends on the type of service that is being offered. Computer 

services, for example, find it pretty easy to get into the export market. Other services that require professional licensing abroad are 

more complicated. 

I think you can go to SBA as a service exporter and seek some 

assistance. The program really is designed, I think, originally 

around goods exports, but it could be made to work for service exports. 

Mr.CHABOT. Thank you. 

And then, Mr. Gaskin, I was interested in your comment when 

you went back to 2002 and the famous steel tariff debate we had 

here in Congress that the President was pushing. And I was one 

of the Republicans that voted against it because I was concerned 

about the impact that it would have on other businesses, and I am 

more laissez faire when it comes to tariffs. I think we ought to keep 

them as low as possible. 

But could you talk about the unintended consequences when we 

act up here, and sometimes how they end up when we are trying 

to do something to protect jobs, like we were in that debate, and 

30

ultimately passed that legislation and the impact that it did have 

on smaller businesses like the metal folks that you represent? 

Mr.GASKIN. I would be happy to. The reality is that when the 

government gets involved in making decisions about which industries win and lose, there are consequences. And in this case, it was 

a decision by the government to add a 30 percent duty on imported 

steel, which meant that in that period I referenced, steel prices in 

the United States went crazy. They were increasing by 40 to 60 

percent in a 4- or 5-month period. And middle-market companies 

like Our Technology in your district—30 employees, makes bearings for car jacks—couldn’t go to their automotive customer and 

say I need a 40 percent increase, or a 20 percent increase, because 

steel was half the cost. Well, they tried, but they said no. So they 

were faced with losing their business. 

There are two factors. One is the direct loss of business. If your 

primary raw material of a metal forming company is in a market 

that is protected from global competition so we pay about the same 

prices here as they do in the rest of the world, then we are not 

competitive. If we don’t pay the same as the rest of the world, we 

are not competitive. During that period we were paying about $200 

a ton more for steel in the United States than they were in China 

or Europe, about $100, so we weren’t competitive. So you lose direct jobs. 

More damaging, probably, is the indirect loss. Big companies 

make decisions to move entire products elsewhere in the world 

where they have stability of pricing in materials that are a big part 

of the product. And so that is the larger loss. You lose some jobs 

directly but others you lose indirectly. 

I think some of the key components of this legislation are in Title 

II, the trade compliance areas, and also Title III, the trade adjustment assistance for companies. I mentioned the trade compliance 

issues and it is horrendous. The trade laws don’t work the same 

for small companies as I think you said, Chairwoman, as they do 

for big companies. 

Mr.CHABOT. Thank you. 

Mr. Hager, we are all on a number of Committees and I am on 

Foreign Affairs, and we have folks from the State Department 

come over and we grill them on Iraq. And I am on Judiciary, and 

we just had the Attorney General over talking about all kinds of 

things that he is being challenged on and criticized about in Committee. 

Let me throw you a softball there. Are there any—are you concerned that there have been any misunderstandings or anything 

that you would like to explain a bit more fully in defense of the 

SBA or yourself or your family or anybody else that you know? 

Mr.HAGER. Well, you are very kind, and I appreciate that very 

difficult question. 

A couple of things. And thank you, because I would like to respond very strongly. And that is, as a public servant who is here 

because I want to be here, who left the private sector to say I want 

to do something for this government, I want to do something for 

these small businesses, I think we are overlooking the fact that we 

are in this with you. The proposed legislation on micro, we are 

talking about some fine-tune issues of disagreement. For example, 

31

how you deliver technical assistance. We counsel several hundred 

thousand people a year. We have 1,100 SBDC locations. Can we absorb it? We believe strongly we can. We can provide that. 

But we don’t—we are not on opposite ends on what the end game 

is. We are with you and we want to support you to get there. 

We want to work with the Chairwoman to set up some special 

meetings with some of your staff members. 

ChairwomanVELA ́ ZQUEZ I assure you that I am going to be here. 

Mr.HAGER. Excellent. Well, I hope you will invite me back and 

I hope that we can get our staff members together. 

ChairwomanVELA ́ ZQUEZ if not, the administrator. 

Mr.HAGER. If not, the administrator. 

But we are looking very much forward to working with you to, 

we believe, iron some of the wrinkles out that we don’t see as significant. There are some that, yes, are significant; but for the most 

part they are not. Particularly in the Micro-program. Thank you 

very much. 

Mr.CHABOT. I yield back. 

ChairwomanVELA ́ ZQUEZ Ms. Clarke do you have any other questions? 

Ms.CLARKE. No. 

ChairwomanVELA ́ ZQUEZ again, I would like to thank all the witnesses. Members have 5 legislative days to submit materials and 

statements for the record. The hearing is adjourned. 

[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]

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