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FULL COMMITTEE HEARING ON

DISASTER RELIEF AND

ACCESS TO CAPITAL LEGISLATION

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 8, 2007

Serial Number 110-6

Printed for the use of the Committee on Small Business

(

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

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

JUANITA MILLENDER-McDONALD, 

California 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

JUANITA MILLENDER-McDONALD, 

California 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

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

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

Jefferson, Hon. William ........................................................................................... 3

Baker, Hon. Richard ................................................................................................ 5

WITNESSES 

PANEL I 

Mitchell, Herbert L., Small Business Administration .......................................... 8

Witt, James Lee, James Lee Witt Associates ........................................................ 10

Alford, Harry C., National Black Chamber of Commerce .................................... 13

Dorfman, Margot, U.S. Women’s Chamber of Commerce .................................... 14

PANEL II 

Hager, Michael, Small Business Administration .................................................. 29

Roth, Kathleen, DDS, American Dental Association ............................................ 31

Rodman, Jeffrey, Credit Union National Association ........................................... 32

Main, David, National Association of Development Companies .......................... 35

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 43

Chabot, Hon. Steve .................................................................................................. 44

Altmire, Hon. Jason ................................................................................................. 45

Mitchell, Herbert L. ................................................................................................. 47

Witt, James Lee ....................................................................................................... 52

Alford, Harry C. ....................................................................................................... 60

Dorfman, Margot ..................................................................................................... 64

Hager, Michael ......................................................................................................... 66

Roth, Kathleen ......................................................................................................... 71

Rodman, Jeffrey ....................................................................................................... 78

Main, David .............................................................................................................. 83

National Association of Federal Credit Unions ..................................................... 86

Proposed Legislation: 

H.R. 1361, To Improve Disaster Relief Programs of the Small Business Administration .......................................................................................................... 87

H.R. 1332, To Improve Access to Capital Programs of the Small Business 

Administration ..................................................................................................... 113

(V) 

(1)

FULL COMITTEE HEARING ON 

DISASTER RELIEF AND 

ACCESS TO CAPITAL LEGISLATION 

THURSDAY, MARCH 8, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

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

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

[chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Jefferson, Gonza ́lez, Bean, 

Moore, Altmire, Clarke, Sestak, Chabot, Akin, Musgrave, Westmoreland, Davis, Fallin, Buchanan and Jordan. 

Also Present: Representative Melancon (LA). 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. Good morning. I am pleased to call this 

hearing to order. 

First, I want to thank each of the witnesses that will be testifying today presenting their views and comments regarding the 

proposed legislation that we have before this Committee. 

This morning’s hearing will discuss two very important and different roles that the Small Business Administration plays. Access 

to Capital and Disaster Assistance. 

This Committee has held two hearings on these topics and today 

we will review legislation that attempts to address many of those 

issues brought up during those discussions. The Disaster Loan Program was created for the purposes of providing financial assistance 

to entrepreneurs. However, as most of you recall Hurricane 

Katrina tested this initiative and uncovered many problems. After 

the storm the effected small businesses were brought down with 

paperwork and substantial delays in receiving much needed aid. 

There is no question that this cannot happen again and that our 

small businesses better. 

For the SBA to assist entrepreneurs they must have a disaster 

plan in place. Processes need to be streamlined and tools should be 

available to provide relief in a faster, more efficient matter. We 

also need to move away from the current one size fits all approach 

and broaden the type of aid for small businesses. 

This includes using vehicles such as bridge loans and grants to 

respond to the diverse needs of the experience. The disaster relief 

legislation being reviewed today, the RECOVER Act of 2007 does 

just that. 

2

Clearly small businesses do not just need capital following a disaster. They need each and every day to start and expand their ventures. The SBA loan programs, while valuable, could be doing so 

much more. They were first developed to provide long term financing. For these initiatives to live up to their original intent, we need 

to make them more affordable and accessible for small business 

owners. 

The Small Business Lending Improvement Act of 2007 introduced by Ms. Bean and Mr. Chabot will reduce the financial and 

regulatory burden placed on small businesses. Most importantly, it 

will make loans more economical while providing long term ability. 

HR 1332 will accomplish a number of important public policy 

goals. This legislation provides incentives for medical professionals 

to locate to low income areas and establishes a rural lender program to attract small lenders back into the program. 

Also, veterans returning from Iraq and Afghanistan will be able 

to secure funds to further expand their funds should they choose 

to do so. After all they have done for our country this is the least 

we can for them. 

This bill touches all aspects of the SBA lending initiatives, including 504. 

One thing about this program that has always stood out are the 

ties between local CDCs and the community. The Small Business 

Lending Improve Act of 2007 strengthen these ties by making 

much needed and long overdue changes. It also keeps the initiative 

affordable by enabling CDCs to improve the liquidation process allowing fees to remain reasonable. 

Today’s hearing will provide members with an opportunity to 

provide input and fine tune these proposals in preparation for next 

week’s markup. This country’s 26 million small businesses must 

have the ability to secure affordable capital in order to continue 

spurring economic development and job creation. It is not only important that they are able to start their businesses, but if effected 

by a disaster such as Katrina, entrepreneurs must be able to receive reliable and efficient aid. 

I believe the legislation being reviewed today strengthens: The 

Disaster and Access to Capital Programs giving small businesses 

the tools they need to be competitive and success. And I look forward to hearing the witnesses testimony. 

And now I will recognize Mr. Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you, Madam Chair. And I’d like to thank 

Chairwoman Vela ́zquez for holding this hearing in which we’ll review access to capital and disaster legislation. 

I also want to thank our witnesses for taking the time to share 

their thoughts and experiences regarding these important issues. 

And I especially want to thank David Main, a constituent from my 

District Cincinnati, and the President of the Horizon Certified Development Company who I will be introducing shortly for making 

the trip from Cincinnati today. 

Already this Congress, this Committee has held hearings on the 

SBA’s response to the Gulf Coast hurricanes as well as the SBA’s 

primary loan programs, the 7(a) and the 501 programs. 

3

During these hearings the Committee has had the opportunity to 

hear the experiences of a cross section of witnesses who use and 

participate in these important programs. After hearing these personal stories it became apparent that some adjustments need to be 

made to make these programs better. 

For instance, I strongly believe we need to evaluate ways to expand the 7(a) and 504 loan programs to provide opportunities to 

small business owners in rural areas and urban areas. However, I 

believe this should be accomplished without reverting back to the 

days when the viability of these important lending programs was 

dependent on receiving appropriations. 

Furthermore, I feel that veterans who choose to open a business 

deserve every opportunity to be successful entrepreneurs in their 

new lives as private citizens. And the SBA should be able to assist 

them. While this should also be done in a fiscally responsible manner, the terms of 7(a) loans for veterans should reflect their selfless 

contribution to defending our nation. 

Also of great interest to I think many of us, and I am sure every 

member of this Committee is rethinking the procedures used by the 

SBA to respond to a future national disaster, one that may or may 

not be similar to Hurricane Katrina’s devastation. I would certainly 

that we do not have a repeat of that anytime in the near or distant 

future because of the devastation that that caused. 

Reevaluation of disaster plans, including SBA coordination with 

FEMA and the mobilization of a standby personnel force to process 

disaster loans is crucial who will need help from the SBA Disaster 

Loan Program in the future. 

The legislation we will discuss today is critically important for 

existing small businesses, Americans who dream of starting their 

own business and those who may have the misfortune of having to 

pick up the pieces following a national disaster. 

I look forward to listening to today’s testimony and working with 

Chairwoman Vela ́zquez in finding ways to improve these important 

loan programs. 

And I yield back the balance of my time. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Chabot. 

And I now I recognize Mr. Jefferson for an opening statement. 

OPENING STATEMENT OF MR. JEFFERSON 

Mr. JEFFERSON. Thank you, Madam Chairlady. And I want to express my appreciation to you as well for the leadership you are providing in this area and to Mr. Chabot in support of the work. 

I would like to also welcome Richard Baker from my home State 

who we will hear from just a minute and who is co-authoring one 

of the important bills under consideration. 

I will just limit my remarks to the disaster issues. In the Gulf 

Coast region SBA received about 422,000 disaster assistance applications for the Gulf Coast hurricanes. Of these applications, 

159,000 or 38 percent were subsequentially approved and funded 

in the amount that just exceeds $10.8 billion. 193,751 applications 

were denied, and nearly 70,000 applications were withdrawn by the 

borrower for various reasons for complications and the rest. 

Of the funds approved for victims of these hurricanes, just under 

$5 billion has been dispersed as of January 22, 2007. 

4

The SBA also lacked adequate service and support for its information and telecommunications systems making it difficult to contact perspective borrowers and for them to communicate with the 

agency. 

We had in the Gulf Coast, of course, the kind of experience that 

no one has ever seen before where you had people who were both 

homeowners and business owners out of both places at the same 

time and trying to qualify and provide records and information to 

the SBA that they were not just prepared to provide any flexibility 

for. And that is a big set of issues. 

I want to make two other small points, Madam Chair, if I can. 

There will be some discussion today bout the SBA lending program and its coordination with the so called Road Home Program 

that we are trying to use CDC money to get people back in their 

homes and to whether some of the efforts that we are pushing now 

to get some relief for small business people for homeowners, particularly is double dipping. 

I just want to say to you that for most people back home the big 

problem is they have a mortgage on their house they have to pay. 

They get an SBA loan and the question is whether they can qualify 

for it because they may or may not have their jobs back in place. 

And the Road Home Grant comes along and they have to pay off 

the SBA loan, and they are just about where they were when they 

started out. And so we have got to make some sense out of that 

because no one wants to have our folks double dip with the Federal 

Government, but you also want to make some real sense out of 

what is happening to people in real a life situation. 

The other issue that we will talk about a little later, and Mr. 

Alford testifies perhaps I will ask him about, is the 8(a) program 

that is authorized by the SBA statutes. And what basically has 

happened there is that there is a nine year life for 8(a) contractors 

to enjoy the opportunities that the program presents. That life was 

interrupted by the storm. And so the question is to what extent are 

we going to extend that so that the program participant who was 

there in 2005 in August gets the same length of time and enjoyment of the 8(a) status as anyone else would. And so we think it 

may be reasonable to extend it by 15 or 18 months. And I hope we 

will have the cooperation of the Committee to get that done. 

Madam Chairlady, I will yield back. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Jefferson. 

And now I have the pleasure to welcome Mr. James Baker to the 

Committee. And he represents one of the most impacted area on 

the Gulf Coast. Richard. I’m sorry. 

Mr. BAKER. I respond to a lot of things, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Do not get insulted by that. 

Mr. BAKER. No, no. Not at all. 

Chairwoman VELA ́ ZQUEZ. You know, I am called Nardia, Nydia 

and it is just I know that it is an expression of love. 

Mr. BAKER. Thank you. When Howard Baker became Reagan’s 

Chief of Staff I got letters congratulating me. 

Chairwoman VELA ́ ZQUEZ. And I want to thank you for the input 

and feedback. In fact, you worked closely with the Committee in 

crafting the legislation that we are considering today. 

5

Mr. Baker, I believe that there are two challenges that are going 

to be before us. And that is the grant provision and the Road Home 

Grant provision. And I would like for you to address those in your 

statement, if you can do that. 

STATEMENT OF HON. RICHARD BAKER (LA), CONGRESSMAN, 

U.S. HOUSE OF REPRESENTATIVES 

Mr. BAKER. Thank you, Madam Chair, Ranking Member Chabot, 

Members. 

I am pleased to be here. And I know you have a distinguished 

panel of witnesses to follow, so I will be as brief as possible. But 

I have deeply held convictions for a conservative Republicans who 

has deep and abiding faith in markets. But we are facing a recovery problem in Louisiana that the free markets cannot simply address today. And let me explain how. 

First, the Road Home Program, which is constructed at the State 

level and funded by the generously of the Members of Congress 

provided in rough terms about $10 billion for assistance to individual homeowners, not to exceed $150,000 per residence. As of 

February 1 of $10 billion, $31 million has been paid out to individual recipients at an average per household figure of $68,000. 

Something is not working. At that rate it will take 42.6 years to 

expend $10 billion. We don’t have 42.6 years. So we are needing 

some extraordinary diversion from the current set of rules that appear to be constraining. 

The subject matter of the bill before the Committee today in one 

regard is with regard to SBA benefits. For example, an individual 

engaged in the restaurant business prior to Katrina entered into a 

$200,000 SBA loan. Landfall of Katrina, Road Home calculation, 

the person is entitled to assume, let us assume for the purpose of 

this illustration, $100,000. All $100,000 of that loan must go toward resolution of the SBA obligation, although it had nothing to 

do with Katrina, has nothing to do with the viability of the ongoing 

business enterprise. And whether than concern ourselves with double dipping, in this case there is no dip. There is nothing. 

The money goes from the Road Home Program, which is Federal 

dollars, back to repayment of a Federal lending obligation. The 

homeowner, the business person is right where they started: Zero 

with demolished properties on their real estate. 

And herein is the difficulty of the recovery. We were all to imagine ourselves as individual homeowners all living in this community in this room together. If I had all the resources in the world 

and I were to come back today to this community in which every 

structure, every fire station, every school, every hospital, every 

home, social order as we know it is now gone, do I want to spend 

by $200,000, $300,000, $400,000, $500,000 on this tract of land to 

rebuild my house not knowing whether my children will have a 

school, whether there will be a fireman on the corner or whether 

there will be a grocery store at which I can shop. You will not do 

it. 

And so much of the indecision in the recovery process today is 

that we lack a systemic ability to create a market opportunity. 

In Financial Services yesterday we took a very big step to provide an initiative for that type of recovery. And what do I foresee? 

6

One of the elements would be for an aggregating entity, in this 

case it is the New Orleans Recovery Authority, of which Mr. Jefferson is familiar, will be permitted to take control of various assets 

and aggregate them into a contiguous block. We will clean that 

property off, environmentally secure it and then sell it back into 

the market. So that the role of Government in this instance is to 

provide a mechanism where free market forces may work, where 

today they simply cannot. 

As part of that effort to provide an environment of restoration we 

also need to do one of the things that the Chairlady has mentioned 

that is contained in this legislation. And that is to set aside the 

SBA repayment requirement out of assistance provided to homeowners for rebuilding of their residences. And for that, I cannot express deeply enough my appreciation for that approach. 

Why is that so essential? That will then give individuals the tools 

once the recovery has begun, once we have property ready to put 

back into the market to have the assets to rebuy property either 

where they used to live or in another location. 

It also is important from a small business perspective to realize 

that even if the small businessman was not adversely affected; I 

had a radiator shop guy, been in business for many, many years, 

quite successful. His problem is he does not have any customer. So 

we cannot build the radiator shop, we cannot just build the house. 

We have to have a systemic recovery plan where disparate and various governmental resources are brought to bear simultaneously, 

which I have to report to you today, Members, is simply not happening. And that is why you will continue to see the recovery lag 

until you take the extraordinary steps that is being proposed in 

this legislation. 

And I wish to make clear I do not believe the remedies being 

posed in this legislation should be ordinary and customary business 

practice. They should be very significantly constrained to instances 

which are multi-State, cover thousands of square miles in which all 

basic services are lost. So that we set in motion only an extreme 

remedy for an extreme adverse event. 

In many communities that suffer a partial loss of residences or 

public service delivery assets, they still have operating utilities, 

they still have grocery stores, they still have people on with their 

lives and you can build out from that back into the area of distress. 

In this case, St. Bernard Parish, a community of 67,000 people, six 

months after the storm made landfall there were 231 operating 

utility meters. 

Now, when you lose 66,000 plus individuals and all the residences, how do you start the free market? 

And that then leads me to the discussion of what I know will be 

controversial to some of my colleagues, the grants proposals. 

First, it would be limited and constrained by the administrator’s 

judgment as to whether it is appropriate. 

Secondly, I suggested and the Chairlady adopted, a proviso that 

it be made only available to those businesses that were in existence 

and successfully operating continually for a period of two years preceding the storm. 

7

Thirdly, that the amount and whether the terms of that should 

be left solely to the administrator to decide, and the taxpayer best 

interest, how those resources can be utilized. 

Go to the French Quarter. There are restaurants which have 

been operating literally for well over a 100 years. They are in terrible circumstance. They do not have customers. Now how do we 

expect the tourism industry to come back if we continue to lose our 

marquee restaurants and facilities that are the magnet to bring 

people to the French Quarter? 

Believe me: People of Orleans want you out of their backyard. 

We want our lives back. We want our grocery stores to work. We 

want our kids to go to school. And we want to get on with growing 

our own prosperity. But in the short period of time where we are 

trying to build housing to get the customers of the restaurant back 

in the city, there may be a necessity for bridge loans for viable previously existing successful business enterprises to continue with 

some special assistance during this period of recovery. 

It is extraordinary. I would never have thought myself in this position, six months ago, a year ago, two years ago. But I have come 

to the conclusion that these extraordinary measures which you 

should restrict in the most significant way possible are absolutely 

essential for the recovery of this community and this part of our 

economy. 

Why is it important? The oil and gas activity, the seafood market, the port system which between Baton Rouge and New Orleans 

is the largest in the country. There is economic necessity for people 

to live in this part of the world and do what we do. 

Therefore, we must find a way for recovery to proceed in the 

most taxpayer responsible manner possible. And that comes from 

a marriage of governmental essentials married to economic free 

market recovery, which I believe we can move this program forward. But we certainly need this Committee’s assistance and guidance. And we will be happy to work with you in any way possible 

going forward. 

And for this time, I am most appreciative. 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Baker. 

And I would like to add regarding the grant program. That is not 

opened ended and it just solely for this instance, the Gulf Coast 

disaster. 

Mr. Chabot, would you like? Any Member who would like to— 

Mr. BAKER. I will take answers, too. 

Chairwoman VELA ́ ZQUEZ. Well, thank you very much, sir. 

Mr. BAKER. Thank you very much. 

And now I will welcome the next panel to please take your seats. 

PANEL I: HERBERT L. MITCHELL, ASSOCIATE ADMINISTRATOR 

FOR DISASTER RELIEF, SMALL BUSINESS ADMINISTRATION; 

JAMES LEE WITT, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, JAMES LEE WITT ASSOCIATES, A PART OF GLOBAL OPTIONS GROUP, INC.; HARRY C. ALFORD, PRESIDENT AND 

CEO, NATIONAL BLACK CHAMBER OF COMMERCE; MARGOT 

DORFMAN, CEO, U.S. WOMEN’S CHAMBER OF COMMERCE 

Chairwoman VELA ́ ZQUEZ. Our first witness is Mr. Herb Mitchell. 

He’s the Associate Administrator for the U.S. Small Business AdVerDate 0ct 09 2002 17:45 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33617.TXT LEANN
8

ministration Office of Disaster Assistance. He is responsible for administering, planning, developing all aspects of the SBA Disaster 

Loan Programs. 

Mr. Mitchell? 

STATEMENT OF Mr. HERBERT L. MITCHELL, ASSOCIATE 

ADMINISTRATOR FOR DISASTER RELIEF 

Mr. MITCHELL. Good morning, Chairwoman Vela ́zquez, Ranking 

Member Chabot and the distinguished Members of the Committee. 

Thank you for inviting me to discuss the legislative proposals effecting the SBA Disaster Loan Program. My name is Herb Mitchell, I’m the Associate Administrator for Disaster Assistance at SBA. 

Under Administrator Preston’s leadership we are well on our 

way to fixing the many problems experienced by disaster victims 

following Hurricane Katrina. The agency is seeing benefits of these 

new procedures in most recent disasters where over 98 percent of 

all the applications are currently being processed within 14 to 16 

days. 

We continue to focus on enhancing our training, improving our 

IT infrastructure, improving our systems and improving our planning process. 

We are currently providing the States, both Louisiana and Mississippi, with information to support their community development 

block grant funded programs. We are completing the process of reengineering the loan underwriting process, the loan closing and 

disbursement process. We are finalizing the search plans of how we 

would respond in the future to catastrophic events. We are exploring ways to work with the private sector to provide more effective 

support. 

We hope through the legislative avenues of this Committee we 

can reach out to other disaster victims that the SBA currently is 

unable to assist with working capital. By granting SBA the authority to provide economic injury disaster loans to nonprofit entities, 

the agency would be able to help groups and such organizations 

whose main focus is to help others. 

The Administration has no significant objections to Title I of the 

draft bill. However, the Administration does believe the creation of 

the Associate Administrator for Disaster Planing is unnecessary 

and also limiting the reserve core staff to no more than 30 percent 

in any one region may adversely impact our recruiting efforts and 

unnecessarily increase the cost of the program. 

The Administration does have reservations with the second title 

of the bill as it relates to the lending aspects of the program. Section 203 would create a bridge for financing program where borrowers would likely pay higher fees and interest rates on the short 

term financing, and the Federal Government would then have to 

pay administrative costs for two programs to deliver the same assistance for short term loans, later refinanced through the regular 

disaster program. 

Section 204. Providing for noninterest deferment period of up to 

four years would require a massive subsidy in order to cover the 

interest subsidy costs during this period. 

Section 205. The Administration already has the flexibility to adjusting repayment terms and can offer deferments up to two years 

9

or more. Mandating that SBA set payments below what is affordable and use specific deferment period will unnecessarily increase 

the cost of the program. 

The Administration has similar concerns regarding Section 206 

and the disbursement process. Making disbursements without regard to the amount of funds actually needed at the time may increase the risk of misuse of those funds. 

Section 207. The Administration would appreciate further information regarding this provision. As we understand it, the intent is 

to allow business loans under $100,000 to be made without allowing SBA to use the borrower’s personal homes as collateral. This 

prohibition would limit collateral and, of course, increase losses and 

effect the subsidiary costs of the program. 

Section 208. SBA believes there is a role for the private sector 

in assisting SBA in processing disaster loans in times of a major 

or catastrophic disasters and will continue to work with the banking community to find a beneficial solution. We are concerned that 

mandating the use of private sector in specific situations would 

limit our flexibility. The Administration would prefer language allowing the Administrator to use these service at his discretion. 

The Administration is opposed to Section 210. This is duplicative 

of existing programs within the Federal Government. In fact, the 

State of Louisiana is currently providing grants to small business 

through the HUD CDBG funding program. SBA would be establishing a new program to duplicate assistance already being provided. 

The Administration objects to Section 211. If a disaster victim receives an insurance payment or grant to assist in rebuilding a damaged property for which a disaster loan was provided, the Agency 

has an obligation to the taxpayers to ensure that Federal assistance does not exceed the amount of the losses. Under this provision 

a disaster victim could receive as much as twice the amount of Federal assistance for the same loss. 

In regard to the increase in the maximum loan amount in Section 212, the Agency feels that it is not necessary. Our data shows 

that only 600 applicants exceeded the $1.5 million threshold in 

their damage assessments. The Administration is also worried that 

increasing the subsidized loan amount will lessen the incentive for 

those businesses to acquire sufficient insurance. 

In Section 213 the Administration understands the need to allow 

businesses to recover from disasters and our lending is based on 

that premise. However, SBA also believes that once a business has 

recovered it should repay the loan as soon as possible and minimize 

the cost to the taxpayers. 

While we certainly have some concerns with the legislation in its 

current form, we hope we can work closely together with you and 

Members of the Committee and your staff to make sure that in the 

future the problems that SBA faced in response to Hurricane 

Katrina certainly will not happen again. 

We look forward to your questions, and thank you for the opportunity to appear today. 

[The prepared statement of Mr. Mitchell may be found on page 

47 of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Mitchell. 

10

And our next witness is Mr. James Lee Witt. Mr. Witt is currently Chairman and Chief Executive Officer of James Lee Witt Associates, a public safety and crises management consulting firm 

that provides disaster recovery and mitigation management services to state and local governments, educational institutions, the 

international community and corporations. 

Mr. Witt has over 25 years of disaster management experience, 

including 9 years of service as Director of the Federal Emergency 

Management Agency. 

Mr. Witt, welcome. And I am personally very grateful that you 

are spending some time with us this morning. 

STATEMENT OF JAMES LEE WITT, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, JAMES LEE WITT ASSOCIATES,PART OF 

GLOBAL OPTIONS GROUP, INC. 

Mr. WITT. Thank you, Madam Chair and Members of the Committee. 

Thank you for giving me the opportunity to share with you some 

success stories as well as some thoughts and ideas that may be 

helpful to this Committee as you move forward. 

When I was Director of FEMA we depended on SBA. SBA was 

joined with us at the hip. All 350 disasters that we responded to, 

SBA was at our side responding to that community with us. 

SBA and FEMA even had cards that shared information for SBA 

on one side on their disaster programs and FEMA disaster programs on the other side. We worked very closely together because 

it was important that the people that we were trying to serve saw 

that the Federal Government was responding and meeting their 

need and helping them, not only in the short term but the long 

term recovery efforts. 

And I really appreciate all the hard working folks at SBA who 

sacrificed their personal time with their families during disasters 

that I was there to make sure that we did provide the kind of customer services that the American people expected. 

Small businesses recovery is critical for community recovery, particularly in short and long term. Small businesses in this country 

provide the most jobs in local communities. 

The SBA programs are a very important tool of Federal Government’s tool chest disaster recovery work. 

And I see the current situation for SBA has been very similar to 

what we faced when I was the FEMA Director. It is kind of like 

a deja vu all over again. I believe that many of the solutions for 

repairing SBA currently are very much like the ones that were 

needed at FEMA during the time that we started in 1993: Expediting assistance to victims; cutting red tape; better budgeting and 

planning; training and empowering. Empowering employees to 

make decision to be able to do their jobs. 

Congress and the oversight committees play a very critical role 

in the reinvention of FEMA. So I am glad to contribute to your 

work today. 

Leaders like Congressman Louis Stokes, Congressman Jerry 

Lewis, Senator Barbara Mikulski, Senator Kit Bond; all that had 

played a very, very critical in helping us to reinvent and refocus 

FEMA by providing not only support and policy and revolutions 

11

and changes, but also funding. Make sure that we had the funding 

to do what we needed to do and had the tools to do our job within 

the Agency and working with states and local governments. And it 

was a bipartisan effort. 

Partnership between the Administration and Congress allowed 

us to look at legislative changes and clarifications, which we did. 

Prepositioning resources before disaster every happened, which 

was unheard of. 

Creating a Federal coordinating officers cadre, expanding the disaster reserve cadre, providing the funding to expand it to all FEMA 

ten regions and funding the training and maintaining that training 

and certification of these employees. 

We did not want to go through a response like FEMA had gone 

through with Hugo and Andrew. We wanted to make sure we had 

the people and resources in place to be able to respond to meet that 

need, no matter what the size of that need was. 

We did cross training of nondisaster program employees. We 

used technology to improve inspections and to improve our response to individual needs, particularly individual family grant 

programs and temporary housing programs. 

I mention my experiences at FEMA not to relive those days, but 

to offer some hope and encouragement, and possibly a blueprint to 

maybe to help you as Members of the Small Business Committee 

and SBA to begin working on it together. 

I believe the legislation that the Committee has drafted is what 

is needed to sorely improve the SBA Disaster Program. I agree that 

SBA must have comprehensive disaster response plans in place 

that incorporate an all risk, all hazard approach. SBA is training 

and exercising these plan with all of its partners at the Federal, 

State and local level ahead of time. And it is critical for the agency’s readiness. And I know that SBA also has a reservist corps. But 

it is important to keep these folks involved and trained so they remain part of the disaster cadre. 

SBA and FEMA had ten regions. And if you look at those ten regions and if you look at the highest risk reasons, and if you maximize the amount of disaster reservists that you could have in the 

highest regions, but also have them in all ten regions to support 

that area when you have an event like Katrina or the four hurricanes in Florida, to be able to deploy them to support that event, 

it is very important. But it is important to keep these people 

trained. You cannot respond to an event without trained people. 

And you cannot train people on the ground in the middle of a response and be effective. 

Cross train employ some other agencies, which we did, was a 

huge help for us. We would go out to Federal agencies and said do 

you have employees that we can cross train to help us in a disaster 

operation center or help us in the field. And they were more than 

willing to allow their employees, particularly employees that were 

on a career path to get that experience, that knowledge and that 

capability. 

Also if SBA is not doing it already, they should do a cost analysis 

of what were the five most costly years in an SBA disaster declaration. With the exception of Katrina and Rita, your most costly. But 

what was the five year average cost per year of an SBA disaster 

12

cost. And they probably already have that. But what we did and 

what worked so well with Congress and with OMB was we were 

able to use that five year cost analysis to set up a contingency fund 

that was under OMB that was budgeted, that you did not have to 

go back for supplementals every time you had a disaster declaration. And then all we would do then is go to OMB and say we have 

a Presidential disaster declaration that’s going to cost $400 million. 

Our per year average for FEMA over five years was $2.5 billion. 

That might be helpful. I do not know. It is just a suggestion. It 

worked extremely well for us. 

When I was at FEMA we worked so closely with SBA. And one 

of the most important things that we did with SBA is when we set 

up the 1-800 teleregistration system at Hyattsville, Maryland and 

Puerto Rico and Denton, Texas and Mount Weather. Even American Airlines as the backup system to us on teleregistration taking 

applications for people calling in. 

SBA was in that teleregistration center. We got a call from a 

small business that came to one of our teleregistrations people, 

they would just automatically switch it to SBA in that teleregistration center. 

Let me just say this: During the time of the eight years that I 

was there I saw not only FEMA that was able to get individual 

checks to people that were eligible within seven days. I saw SBA 

that were able to take loan applications, process it and have it 

closed out within 30 days. 

They did a great job. But I want to say this in closing. You have 

to empower the SBA Administrator and the career people at SBA 

to be able to do their jobs and do it well and fulfill their role and 

responsibilities. And my hope is that with your help and with your 

legislation you can help create that atmosphere where that they 

can move forward, and they can cut the red tape and they can 

make sure that small business in this country and homeowners recover much fuller and must faster. 

We did a survey with SBA back, I cannot remember the year 

that we did this, particularly after some of the major disasters. 

And we found in even small, medium or large disaster, that small 

businesses that were effected by a disaster, up to 30 percent of 

those never recovered or never reopened. When that happens you 

lose the heart of a community. And I think SBA is in a position 

to help maintain not only the viability of a community, but also 

help in the long term recovery efforts far greater than any other 

Federal agency. 

So thank you, Madam Chair. 

[The prepared statement of Mr. Witt may be found on page 52 

of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, sir. 

Our next witness is Mr. Harry C. Alford. Mr. Alford is the President and Cofounder of the National Black Chamber of Commerce. 

The National Black Chamber of Commerce is a nonprofit, nonpartisan business association that represents over 95,000 black 

owned businesses and advocates on behalf of more than 1 million 

black owned business. 

Welcome. 

13

STATEMENT OF HARRY C. ALFORD, PRESIDENT AND CEO, 

NATIONAL BLACK CHAMBER OF COMMERCE 

Mr. ALFORD. Thank you Madam Chairwoman, distinguished 

Members of this very important Committee. 

I appreciate the opportunity to discuss a few things that I can 

get off my chest. 

I notice the timers working now on me. The previous two did not 

have a timer. 

But, yes, Mr. Witt, those were the days. I remember my first 

meeting with Mr. Mitchell in 1994. The National Black Chamber 

of Commerce had maybe 18 chapters. And the SBA have over a 

staff of over 5,000 well trained individuals. They had a budget of 

$860 million. They were the resource for small business. 

Since 1994 small business has boomed. The African-American 

segment of the small business community has grown from 1997 to 

2002, according to the Census Bureau, a growth of 42 percent. 

There are over 1 million black owned businesses today doing very 

much and doing well. 

The State of Louisiana had the 11th highest population of black 

owned businesses in the nation. 

Since 1994 the SBA has been increasing and shrinking and 

shrinking each budget cycle less, less, less. It was set up to the 

point that a disaster was going to come, and Katrina presented 

that opportunity. 

We are faced with an ever competitive global market and yet we 

have dwindled the SBA to a point of anemia. Our readiness has 

been depleted and the SBA became a disaster waiting to happen. 

Eventually the challenge submerged at the start of Katrina. Yes, 

it was the greatest natural disaster in our recorded history, but the 

worse came with the response that could not even attempt to be 

adequate or meet the demand. 

I welcome the proposed legislation as improvement and as 

progress, and perhaps a turnaround to the attempts of many to do 

away with the SBA, to the point of it being almost lifeless. 

In terms of planning, the SBA should be required to develop, implement and maintain a comprehensive written disaster response 

plan based on the intensity of Katrina. Office space staffing system 

complete with coordination scenarios with applicable Federal agencies should be established as soon as possible. This plan should be 

tested through drills and exercises that would simulate a major 

disaster. These plans should be realistic with proper resources and 

not designed as blue skies. 

There should be a position established to administer the project, 

and an associate administrator for disaster planning should be created to coordinate with the SBA associated administrator for the 

Office of Disaster Assistance, FEMA and other Federal, State, local 

disaster planning offices as necessary. 

This officer will report directly to the Administrator and will be 

responsible for planning for and leading the agency’s annual training exercises. It should go without saying that this person’s background will be consistent with the duties assigned. In other words, 

let us not have a simple political appointment without rhyme or 

reason, Michael Brown, who will have a meltdown during the first 

crises. 

14

In regards to lending we must have a comprehensive program 

that will significantly increase legislative limits on business loans. 

The process for personal and business lending should be streamlined to expedite funding and a system that is punitive to the borrower in terms of repayment period and subsidies. We can enhance 

the lending authority for our preferred lenders so that they can 

originate, process and disperse home disaster loans for a small fee. 

Short term loans similar to the bridge financing provided by the 

Mississippi State Legislature should be provided so that businesses 

can get started immediately with the rebuilding while they wait on 

the traditional disaster loan process. 

Grants for certain conditions can also be considered in order to 

jump start local rebuilding of businesses that provide jobs to the 

effected areas. 

The SBA should have adequate funding for outreach and marketing. Businesses within our communities rarely know what the 

SBA is and its programs. I dare say that the majority of the over 

1 million black owned businesses in this nation do not know the 

address of the nearest SBA district office or the district manager 

and the applicable staff. Whether they are a mile away or 100 

miles away, there’s no adequate interaction. SBA where are you? 

Thank you, Madam. 

[The prepared statement of Mr. Alford may be found on page 60 

of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

And our next witness is Ms. Margot Dorfman. She is the founder 

and CEO of the U.S. Women’s Chamber of Commerce, an association that advocates for economic policy and community interest on 

behalf of women owned businesses. 

Welcome. 

STATEMENT OF MARGOT DORFMAN, CEO, U.S. WOMEN’S 

CHAMBER OF COMMERCE 

Ms. DORFMAN. Chairwoman Vela ́zquez and Ranking Member 

Chabot, Members of the House of Small Business. My name is 

Margot Dorfman. I’m CEO of the U.S. Women’s Chamber of Commerce. 

And I am pleased to be here today to share the U.S. Women’s 

Chambers of Commerce strong support to the RECOVER Act of 

2007, an important piece of legislation that will give small business 

owners the security of knowing that the Small Business Administration will have an effective plan in place to meet their needs in 

times of crises. 

The 2005 Gulf Coast hurricanes had a dramatic impact on the 

small business members for the U.S. Women’s Chamber of Commerce. But as much as they were alarmed by the damage the 

storm caused to their communities, they have also been shocked by 

how badly managed the disaster response has been. 

Time is of the essence in these emergency situations. For many 

of our members timeliness proved as important as receiving the assistance itself. It was clear that the SBA was completely unprepared to deliver disaster assistance on the scale that was demanded. And certainly not on a time frame that would have expedited recovery. Instead of executing a plan that was already in 

15

place, the Administration reacted to events on an ad hoc basis, 

ramping up employees in locations as the demand grew. Unfortunately, that meant that by the time additional resources were 

added small business owners were already experiencing the terrible 

customer service that came to characterize the SBA’s handling of 

the response to the 2005 Gulf Coast hurricanes. 

The U.S. Women’s Chamber of Commerce enthusiastically supports the RECOVER Act of 2007 because it requires the SBA to 

look ahead to future disaster and plan for a variety of possibilities. 

Readiness is the key to delivering timely, effective disaster services. 

This year communities around the country have called on the 

SBA to respond to a variety of nonhurricane disasters from ice 

storms in Iowa to tornados in Florida. It is vital that the strategies 

be in place to respond effectively to the needs of small businesses 

regardless of the location, size or the type of disaster. 

In addition to creating comprehensive disaster readiness plan, 

the RECOVER Act also requires the SBA to maintain those strategies over a long period of time. At the U.S. Women’s Chamber of 

Commerce we believe that this is a critical function of this legislation. Although many people are still struggling to recover from recent disasters today, it is important that the SBA’s disaster readiness not be allowed to atrophy in the future when conditions for 

victims of the 2005 Gulf Coast hurricanes have improved. 

Ten years from now we hope to see the SBA with a robust, agile 

disaster loan program that has comprehensive and practiced plans 

for a variety of disasters. 

This legislation also makes important updates to the SBA’s disaster lending process, systems that the 2005 Gulf Coast hurricanes 

demonstrated were badly in need of modernization. By providing 

solutions to problems that the SBA had in processing and approving and dispersing loans in a timely manner, the RECOVER Act 

will increase legislation recognizes that assisting small business 

owners after a major catastrophe is not a one size fits all proposition. It will give the SBA more tools to provide small businesses 

with relief depending on their individual circumstances, including 

bridge loans and grants. 

This legislation will allow the SBA to get private lenders involved to provide timely and effective service to business owners in 

these disaster situation. Entrepreneurs will have access to the 

same affordable SBA loan with low interest rates and long repayment terms, just at a different location serviced by a bank in their 

community. 

In closing, I want to thank the Members of the Small Business 

Committee for actively addressing the problems so many business 

owners experience after the hurricanes in 2005. It is critical that 

we learn from those experiences the kinds of stories we are still 

hearing from our U.S. Women’s Chamber of Commerce members 18 

months later and make the needed changes that will ensure that 

if such a terrible disaster happens again, the SBA will be in a better position to help entrepreneurs get back on their feet. 

I thank you again for your time today. And I welcome any questions that you may have. 

16

[The prepared statement of Ms. Dorfman may be found on page 

64 of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Dorfman. 

Mr. Witt, the Administrator of the Small Business Administration has said that oversight and legislation was not needed to address the problems in the disaster program and that operational 

fixes in the Agency’s internal policies and procedures offer a better 

solution. Would you agree with that perspective? 

Mr. WITT. Well, it would be hard for me to determine whether 

or not I would agree or disagree with them. Of course, I have not 

looked at SBA at a long time. But after looking at the legislation 

that you have put forward, I think the SBA working with this 

Committee on that legislation would be an advantage to them to 

improve the services and the capability of SBA for the future. 

So, you know, just based on what you are going forward with I 

think should help SBA substantially in their processes and what 

they do everyday. 

Chairwoman VELA ́ ZQUEZ. Mr. Mitchell, last month I asked Administrator Preston for the specific time as to when the agency will 

have implemented a comprehensive written disaster plan with data 

from disaster simulations. We are now one month closer to the next 

hurricane system. What can you tell us? 

Mr. MITCHELL. Well, the Agency had made substantial progress 

in getting a plan in place. The Deputy Administration has been 

designated the point person on this, and she has all of the Agency’s 

resources available. 

I can tell you just this week there have been at least eight or 

nine people working pretty close to four to six hours a day in terms 

of— 

Chairwoman VELA ́ ZQUEZ. When are you going to have a plan, sir? 

Our concern here is— 

Mr. MITCHELL. I understand. And the Administrator has charged 

the Deputy with getting that done. 

Chairwoman VELA ́ ZQUEZ. He is going to charge the Deputy? 

Mr. MITCHELL. She has already been tasked with getting that 

plan done and presenting him with a draft to start the internal review process. 

Chairwoman VELA ́ ZQUEZ. The Administrator was before this 

Committee close to a month ago. And I think that we all saw what 

happened with the inefficient, ineffective response coming out of 

the Small Business Administration. Here we are a month before 

the next hurricane season and you are telling me that just the Administrator charged the Deputy to come up with it? 

Mr. MITCHELL. A lot of work has already been done in terms of 

developing the service plans, developing scalability models, looking 

at the forecasting data, pulling all of the information together in 

terms of how we are going to coordinate with the districts. 

Chairwoman VELA ́ ZQUEZ. Are you telling me 18 months later 

after Hurricane Katrina touched down, the SBA does not have a 

plan? 

Mr. Witt, in its most recent report the General Accounting Office 

recommended that the SBA consider using disaster simulations 

and catastrophic models in its disaster planning process. In his testimony before the Committee, the SBA Administrator said that 

17

these tools are cost prohibitive. In your experience what is the 

value of these values relative to the cost? 

Mr. WITT. Well, I think probably, you know, we used to does this 

all the time, and I know they still have this as FEMA as a modeling tool. 

We did a simulation on Miami with a category 4 hurricane hit 

in the city of Miami using the model. And the estimated losses 

there at that time, back in the ’90s, it was like $85 billion just for 

the city of Miami. 

So you can take any of the Federal agencies that has the modeling capability, whether it is SBA or FEMA or Corps of Engineers 

or DoD. You can utilize those existing modeling simulations and capabilities to do what you need to do and looking at all your high 

risk states or local communities and come up with a simulated cost 

of what you particularly have in case they were hit. 

Chairwoman VELA ́ ZQUEZ. Are there more cost effective ways to 

integrate these tools into the disaster planning process? 

Mr. WITT. Absolutely. In Lafayette, Louisiana, the University of 

Lafayette, and at many universities in the United States are doing 

modeling, just as we speak, and has the capability to link into any 

Federal agency. 

Lafayette University has the third largest super computer in the 

world. You can give them a simulation or a different scenario, they 

will plug it in that super computer and they can spit you out a 

model instantly. And any Federal agencies or any local governments can access this. And it’s very cost effective. 

Chairwoman VELA ́ ZQUEZ. One other thing that we gathered from 

the hearings that we conducted regarding the disaster relief lack 

of planning and inefficient response is that the disaster planning 

is decentralized and fragmented. The Agency delegates planning to 

local agency officials. And their reason is that these individuals are 

in the best position to estimate the Agency’s needs. 

The Agency maintains a variety of documents detailing the SBA’s 

policies and procedures for responding to a disaster. In your experience is this approach adequate to fulfill the need for comprehensive 

disaster planning? 

Mr. WITT. I am just basing this on my experience in what we 

have seen and done. 

It is very important whether you are a local government, a State 

government or a Federal agency in the Department of Federal Government that you have a plan that is in sync with not only at the 

national level, but also in all the district and local levels. And that 

plan is not only exercised and tested. Because if you just have to 

do the planning and the exercising in the region or the district 

level, then if you have an event and have to respond, there is no 

way that the national and the local and the region is going to be 

in sync. So you really need a national plan for a Federal agency 

that is linked to the national response plan. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Witt. 

Mr. Alford, you heard the testimony from the Administration’s 

position regarding the disaster, the RECOVER Act. And they say 

that the grant program under this legislation is duplicative of other 

programs in the Federal Government like the CDBG program. 

18

Based on what you have heard from your members why is not this 

program duplicative of any other grant program that exists today. 

Mr. ALFORD. Well, first the Community Development Block 

Grant money is not reaching our businesses in terms of Louisiana 

and New Orleans, it is good for home ownership and it is good to 

pay off some federal debt. You know, it is HUD covering the back 

side of the SBA loan program. It is doing nothing for individual 

businesses. 

Secondly, the whole administration of this Road Home Program, 

John Gotti could not have written a better picture where you have 

got D.C. grants, D.C. contracts going to people who have to clue of 

how to manage this program. And they are raking the money off 

of the top. They were trying to give out home loans without appraisals. And people were being lowballed because they were not 

adequately appraised. So after all the complaints they come up 

with a group of appraisers from California to come to Louisiana. I 

think Congressman Jefferson will tell you, there are plenty of good 

appraisers in Louisiana. But that message is sent that this is about 

grab bag money, it is not about business development or disaster 

relief. 

And for the SBA to say that is good enough when they should 

be the experts at providing grants to businesses and have a database of businesses and know the ones that have a good chance of 

recovery with a little grant money, why are they walking away 

from that? Why are they shying away from that? Why are they not 

embracing that idea? 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I will recognize Mr. Chabot. 

Mr. CHABOT. Thank you, Madam Chairwoman. 

Mr. Mitchell, if I could start with you. I just wanted to state for 

the record that we share the concern of the Majority on preparing 

a disaster plan, getting it done. You know, we certainly do not 

want something hastily thrown together just to get it done. It 

ought to be done right. But it certainly should be a priority of the 

SBA. And I would assume that it is a priority? 

Mr. MITCHELL. Well, we wholeheartedly agree and this Administrator is committed to getting it done. 

Mr. CHABOT. Okay. 

Mr. MITCHELL. Certainly committed to getting it done. 

And on the area in terms of catastrophic risk modeling, we are 

looking at the data. We have already met with the folks from 

FEMA. We have access to their information. And our plan is to 

take that data and those models and test our plan against that 

data. 

Mr. CHABOT. Thank you. 

Let me follow up. Has the SBA estimated the cost of performing 

an annual disaster simulation exercise? 

Mr. MITCHELL. Well, we have looked at various models in terms 

of, you know, do we do a full scale exercise, do we do tabletops, do 

we exercise certain portions of the plan. For example, the field operations. And, obviously, there could be a myriad of things that you 

could do. It could range, our estimates, anywhere from as low as 

$50,000 to a million dollars. 

The plan is to have a series of exercises over a period of time. 

19

Mr. CHABOT. All right. Thank you. 

Mr. Witt, let me turn to you if I can. 

What role should business interruption insurance play in a business disaster preparation? 

Mr. WITT. A very important role. You know, if a business has 

business interruption insurance, it is much easier for them to recovery much faster. 

I also want to speak just a moment about the grant program that 

we were speaking of real quick. 

Mr. CHABOT. Okay. 

Mr. WITT. The grant program for a small business that has been 

approved for a small business loan, particularly acting as a bridge 

to be able to get that recovery effort moving, particularly in catastrophic events like Katrina is really, really critical. 

You know, Governor Blanco set up a bridge loan to the parishes 

because they had zero revenue. And these communities right now, 

these small businesses, they cannot go back and get started back 

without some bridge of some help. But many times, and Herb will 

tell you this, he went with me many times to many events. But the 

business interruption losses, a lot of small businesses across the 

country do not have this. They cannot afford it. And so they are 

in a situation of providing jobs for 5 people or 10 people and keeping their businesses open, and they have to cut costs everywhere 

they can. You know, it may be health insurance, it may be others. 

But a lot of them cannot afford that and stay in business. 

Mr. CHABOT. Thank you. 

Mr. Alford and Ms. Dorfman, in the time that I have remaining 

I would like to ask you all a couple of questions. 

Both of your organizations had members effected by Hurricane 

Rita and Rita and Wilma. How many of those members, if you 

know, are still not fully operational relative to the businesses? 

Mr. ALFORD. I would guess 70 percent. 

Mr. CHABOT. Seventy percent are still not operational? 

Mr. ALFORD. Not operational. And the ones who are operational 

were just very exceptional individuals. Strong individuals with 

some good strong savvy and could go to the President of Shaw or 

Bechtel and come out with some business. But those relying on the 

SBA to get them contracts in this rebuilding, they have not received anything. 

Mr. CHABOT. Ms. Dorfman? 

Ms. DORFMAN. I would say the majority of ours have, as well, 

they are still in challenging situations. Many of our members actually moved out of the area so they could start business again. Many 

of our members have not received loans to date. So there is still 

an ongoing problem in the region. 

Mr. CHABOT. Okay. Thank you. 

Yes, Mr. Alford? 

Mr. ALFORD. If I could say, the President of the New Orleans Regional Black Chamber of Commerce has a cement company. And he 

was the first black contractor to be utilized in the Katrina disaster 

by way of the Corps of Engineers stealing $300,000 worth of his 

sand that he had warehoused at the New Orleans Air Port. And 

that was two years ago, just about, a year and a half. He has not 

been paid for that $300,000 yet. 

20

Mr. CHABOT. And finally, how hard is it for your members to 

plan recovery in areas that were effected by Hurricane Katrina 

when they do not know whether the area will have sufficient residents to support their businesses? And that was mentioned by Mr. 

Baker, Congressman Baker in his testimony. But I would like to 

hear from you all, if we could. 

Ms. DORFMAN. Well, it is very difficult. Some of the challenges 

that our members had when the hurricanes first hit was I have one 

member who when I spoke with her, she had lost her home, she 

had lost her business and she lost her mother. So we are talking 

devastation that is unthinkable. And now she has to think about 

how do I find an SBA loan? How do I actually go about it? 

When they finally got her the paperwork she was overwhelmed 

and she could not even continue forward. And I think that is what 

we are looking at. It is more then, gee, there is an issue and we 

have to get a loan. There is a great deal of trauma and grief that 

is going on. And those businesses who are having trouble just keeping their heads up, let alone where is my paperwork because my 

computer system is down, so I don’t have the documentation to file 

to get a loan. That is where the grants are going to be so important 

to come in to help in that interim while they are trying to pull that 

information together so that they can actually apply for a loan and, 

hopefully, get one. 

Mr. CHABOT. Thank you very much. 

Ms. Alford? 

Mr. ALFORD. Yes. You really have to admire the resilience and 

the creativity of a lot of the people, particularly in New Orleans. 

There is a barber who put up a tent at a gas station, on the 

grounds of a gas station and got a generator and reopened his barber shop in that tent. Last month he moved into a building. 

There is a lady who waits tables at the W Hotel who was realtor 

prior to Katrina. She and her sister moved in together and they 

rented out the lower level of their house, which was gutted. They 

rented out the lower level to a contractor who will bring spare 

parts and pieces and drywall and start reassembling their house. 

But it is that kind of resilience that are making them stand on 

their feet and get back together. It is a shame they are their own 

though. It reminds me of my grandfather during the depression. 

Have we not come beyond that? 

Mr. CHABOT. And that is why I want to commend the Chairwoman for holding this hearing. Because with the resilience of the 

people and what they have done to try to bring their lives back together, it is unfortunate that the Government was not up to the 

task, and we need to learn those lessons and do much better the 

next time. 

Thank you. 

Yield back. Thank you, Mr. Chabot. 

Mr. Jefferson. 

Mr. JEFFERSON. Thank you, Madam Chair. 

It is hard to know where to begin with the questions. 

Let me ask you about the small business loans and how they 

have affected your members. 

Well, let me just make a statement. The CDBG money that is 

available to small business is very, very small. Out of the money 

21

that the $10.5 billion has been allocated, as I am sure the Committee members know, only $168 million has been available to 

small businesses and small business grant. Of that amount, there’s 

a limitation. No small business may receive more than $20,000. 

So if you receive a $20,000 grant and then you are lucky enough 

to get an SBA loan, you pay that $20,000 to the SBA when no one 

would claim ever that it is enough to get your business going. 

So how is it a duplication? The only way it could ever be a duplication is if you got enough to fully recover your business, and this 

is on top of that. That is not happening. 

So the argument that this a double dip for people in Louisiana 

is quite misplaced and I really wish the Administration would 

think about that and try to help us find solutions and maybe tone 

that idea down. 

The same would apply to homeowners. And I just got to ask you 

about this. So Mr. Mitchell, you would agree with me that in a case 

where the Road Home Program — not Road Home, the CDBG is 

only $20,000, there is hardly any chance for a duplication. Would 

you not agree with that? 

Mr. MITCHELL. Well, there is a great deal of flexibility when you 

are working with small business. And what we are really talking 

about here is working capital and what the purpose of that grant 

fund is. 

Obviously if it is going to repair, replace the same thing that we 

have made the loan for in terms of the physical loan, obviously we 

have to take a look at that. But I would suspect that most of these 

cases it is going to operating capital. And in most cases we are able 

to determine that there is additional injury or additional recovery 

period. And I would dare say in the majority of these cases there 

would be no duplication. 

Mr. JEFFERSON. I would think not. I would think hardly any of 

it there would be duplication. And just to put people through all 

these hoops to go and explain it that it is not duplication, it just 

delays process. We need to find some more mays of dealing with 

it. 

Mr. MITCHELL. Right. Understand. We have a team of folks that 

are working this. Our average turn around time right now on all 

of the grant program is three hours. Once we get the information 

the state— 

Mr. JEFFERSON. What is it now? 

Mr. MITCHELL. Three hours. 

Mr. JEFFERSON. Three hours. 

Mr. MITCHELL. We are able to basically do that process, get it 

done in three hours and get them the information back the next 

day. 

Mr. JEFFERSON. Well, I would like to see the report on that, you 

know, that sort of experience. Because it is not what we hear. 

And let us talk about the Road Home Program money. 

Mr. MITCHELL. Yes. 

Mr. JEFFERSON. It is equally problematic. And I think you should 

understand how it happens. Here is a reading from the ‘‘Times Picayune’’ from which I do not read all that much, but nonetheless 

here is what I think is worth reporting to you. 

22

‘‘If you receive an SBA loan for personal property,’’ this is quoted 

from a resident there. ‘‘The way the SBA loan reads is if someone 

comes along and gives you some other money for this, you got to 

pay the SBA back’’ this Ms. Alan Langhorn says. This is a resident 

whose home flooded with about five feet of water. They say oh, that 

is duplicate funds, so they demand their money back. 

With the Road Home Program what happens, he asked. If a person gets $150,000 from Road Home Program but SBA already gave 

that person $90,000, suddenly you only got $60,000 the person 

says. 

Clearly this is an extraordinary circumstances. So the normal 

standard SBA contract everyone is signing right now should be disregarded. 

Tell me how you would deal with that. Here is a person, the only 

again this would ever be a duplication, that the person got enough 

to fully bring the house back. And here is the reason why they do 

not. Most people have a mortgage on the house and they are trying 

to pay the mortgage payment. They go to the SBA and they say 

I want a loan. The SBA, they may go out assess the damage and 

say you need a loan for, let us say, $200,000. But you are already 

paying a note, so therefore you cannot afford the whole amount. So 

this is all that is available to you. 

So you make a decision and you do what you can, and you get 

a $100,000 when you know it takes $200,000. Road Home Program 

comes along and they never give you 150. Forget that. The average 

grant amount is 68. But that is also skewed. Because the folks that 

are getting them now are the people who have the better houses 

and who are able to make their case better than the folks who have 

the less good houses. So you are going to see that $68,000 figure 

go down and down over time. 

But bottom line is no one is getting from the SBA, hardly anyone, is getting what they need to build back because they cannot 

prove they can pay the loan back. And consequently, they are just 

getting what they can and then hoping that Road Home Program 

will fill in the gap. But then Road Home Program comes along and 

it is just taken away, and they hardly ahead and they cannot get 

back home. 

So do you not agree that there is need for some way to get after 

this differently than just saying it is double dip? 

Mr. MITCHELL. Well, I think you have to start with the premise 

that the laws that are in place prevent us from providing assistance for the same loss using Federal dollars. 

So if the loss to the property, let us say, is $100,000 and we 

make a loan for 100,000 and that home is rebuilt with that 

100,000, next they get a grant for a 100,000. The grant goes and 

it is for the purpose of repairing and replace that home, it goes to 

pay down the loan. The net result is, yes, that individual still had 

a mortgage but they had a mortgage predisaster. But they end up 

in a situation where they have their home repaired with no doubt. 

Now, in doing the calculations if in fact the amount that we have 

determined is not sufficient, we simply increase the eligible amount 

which then allows them access more to the grant funds. 

Mr. JEFFERSON. I am afraid that is not how it is happening. 

23

Mr. MITCHELL. I can tell you that we have processed over about 

3600, and only about 20 percent of these actually end up being duplications. But we are required to look at it, at least look at it. 

Mr. JEFFERSON. But what is happening to folks back home is 

they are having to pay these loans off and they are getting small 

grants and they are not getting enough to get back into their 

homes. 

So now you say in both cases that the people can come and 

present the evidences, then they can get relief. It is an awfully 

hard process. You say three hours. God, I wish it were three hours. 

I hope it is. But we do not find that to be the case. 

Here is what we need from you. 

Mr. MITCHELL. Yes. 

Mr. JEFFERSON. Some ideas about how to make this work. If you 

do not like Section 211, give us something other than just an objection it is duplication. That does not help. Because people really are 

suffering through this. 

Mr. MITCHELL. Understand. 

Mr. JEFFERSON. And it does not really help to have a case-bycase review. 

Now the big problem is people are not qualified both on the business side and the homeowner side for what they need to build back 

their homes. That is the fundamental problem. They do not qualify 

because they have another, in the case of a homeowner, another 

mortgage. In the case of a small business, he cannot prove he is 

going to have customers or he cannot make projections on the business as he normally could. So they are both in terrible positions. 

And it just absolutely does not work to treat it as a normal circumstances. 

Mr. MITCHELL. The only thing I would really suggest, I mean 

part of the challenge here is figuring out if you are going to structure a program how they do not duplicate and you still meet the 

peoples’ need. I mean, if you start from that basis— 

Mr. JEFFERSON. I am asking you to help us do that. 

One last thing, Mr. Alford, I want to ask you this question. I 

have talked—and I do not know whether this is the place to do it, 

Madam Chairlady, in this bill. Maybe in a stand alone we would 

find some way. But we have 8(a) contractors back home who normally enjoy nine year life on the program. They had their enjoyment of that privilege interrupted, as well as anybody in small 

business down there. So they got 7° years, as you say, with the 

year on top of it instead of nine. Do you not think it is fair that 

we find someway to extend the life of the 8(a) contractor? Not to 

extend it past 9 years, of course, but extend it up to 9 years to the 

extent that they—let us say we had another 18 months just to the 

enjoyment of the program if they were in the New Orleans area or 

the St. Bernard or any other place that was effected. So that they 

may have the same privileges anyone else in the 8(a) program? 

Mr. ALFORD. Absolutely. And in fact during this recovery, 8(a) activity, real 8(a) activity, small minority businesses in the 8(a) has 

been cut off. Alaska Native corporations, large white owned, white 

managed male owned with a little paper transaction subsidiary to 

a tribe in Alaska, they have garnered over 80 percent of the contracts let by the Federal Government in the disaster recovery. 

24

I cannot get from the SBA the latest procurement report that 

would list the 8(a)s doing business, because they know I am going 

to go analyze and make phone calls and travel down there that see 

that these 8(a) firms are not even active in the contracting mix. 

So, yes, it should be stretched for those who are out of business. 

And for those who are actually in business now who have been frozen out of the Federal procurement process. 

Mr. JEFFERSON. Madam Chairman, do you think that some way 

this Committee can ask this information that Mr. Alford and others 

cannot get. Just to see how much 8(a) has been utilized now in this 

recovery effort? 

Mr. ALFORD. Madam, I personally asked Administrator Preston 

about six months ago, and he informed me that he was get it right 

to me. That was six months ago. 

Chairwoman VELA ́ ZQUEZ. Mr. Jefferson, we are going to be looking at the contracting practices.. And we will be holding a hearing. 

We are planning to hold a hearing in the Gulf Coast. 

I now will recognize Ms. Clarke. 

Ms. CLARKE. Thank you very much, Madam Chair. 

And thank you all for your testimony here this morning. 

It is really troubling, Mr. Mitchell, to see that this issue of planning seems to be stuck in a rut. Everyday life goes on and we do 

not know what disaster will bring. Can you say today what time 

frame we are talking about, not only for the plan— 

Mr. MITCHELL. Sure. 

Ms. CLARKE. —but its implementation? 

Mr. MITCHELL. Sure. Well, clearly the intent is to have the plan 

in place before the next hurricane season. But I can also tell you 

that parts of the plan area already— 

Ms. CLARKE. But with all due respect, hurricane season begins 

next month. 

Mr. MITCHELL. June 1st. 

Ms. CLARKE. June 1st. So you are saying June 1st we should expect a plan? 

Mr. MITCHELL. The plan will be in a place. But I can also tell 

you that parts of the plan are already in place and we are using. 

We are using the forecasting models. We are using the scalability 

models everyday. You know, in terms of the plans dealing with how 

we upgrade the systems in space, we have already implemented 

those things. 

You know, it is a matter of pulling all of this information together to come up with a final product. But components of the plan 

are in place and being used everyday. 

Ms. CLARKE. And do you believe that its implementation is efficient at this stage? Where would you rate implementation? 

Mr. MITCHELL. Absolutely. 

Ms. CLARKE. That is the critical piece. We can plan from here to 

eternity, it is how we implement it. 

Mr. MITCHELL. And that is a good point. I mean, and part of the 

challenge here will be once the plan is in place to use the plan is 

in place to use the scalability models and the exercises to test it. 

And, obviously, we have not had the type of events. But I can tell 

you in all of the disasters since Katrina, implementing some of the 

25

changes that we have made, we are at 98 percent of applications 

being processed in 14 to 16 days. 

Ms. CLARKE. And so this Committee can expect to have a plan 

in place by June 1st? 

Mr. MITCHELL. The commitment of the Administrator is that the 

Agency will have a plan in place prior to the hurricane season. 

Ms. CLARKE. And we should be able to receive that plan? 

Mr. MITCHELL. It is an Agency wide plan. And, you know, the 

Administrator is committed to getting that plan done. 

Ms. CLARKE. Thank you very much, Mr. Mitchell. 

I yield back the rest of my time, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Ms. Bean, you do not have any questions at this point. 

Now I will recognize Mr. Melancon. 

Mr. MELANCON. Thank you, Chairwoman Vela ́zquez. And I want 

to thank you and the Ranking Member for you all to waive the 

rules to allow me to sit with you today on the dais. 

Mr. Mitchell and Mr. Jefferson went into a few of the things. I, 

too, would like to see that 3° hour process. My last numbers that 

I understand that has been approved, is what, 38 percent of the 

loans that have been applied for in Louisiana or in the Gulf Coast. 

I’m not sure whether it is the Louisiana Gulf Coast have been approved. 

What I found about the military during the immediate aftermath 

of the storms is they are a can do organization. What I find of SBA, 

it is a cannot do organization. 

As you are aware, we had an applicant that was a going business. The problem that they had every time they came in and we 

tried to appeal, there is a different reason for declination. The final 

we came in with was there was a program available by SBA that 

they qualified for, which they needed the more money and this program specifically allowed for more money. But for whatever reason, 

the department chose not to implement or use this program because it would have set a precedent. What is the precedent? The 

precedent was set when the storms came in. 

So why do you not use the tools that have been given to you to 

help the people that have suffered this catastrophic events? 

Mr. MITCHELL. Well, obviously, I cannot discuss the specifics of 

the case. And obviously we have talked about this particular case. 

This was a case of whether or not the business qualified as a major 

source of employment. And I guess the issue centered around 

whether or not they qualified based on their projected activity as 

opposed to where they were predisaster. And that was basically 

issue. 

Mr. MELANCON. Yes. Well, you know, we went through that for 

the better part of a year and every time we went in there was a 

different reason why they could not qualify. 

Mr. MITCHELL. But I do want to clarify the 3° hour turn around. 

I was talking specifically about the grant process and not about the 

processing the loans. In terms of when we get the information from 

the States of Louisiana, Mississippi in terms of whether or not 

there is a duplication of benefits, that process is taking about 3°

to get done. 

26

Mr. MELANCON. Well, and let me ask you this because I have 

been told by several people that the SBA offices in the New Orleans metropolitan area that have been open have summarily been 

closed about every six weeks, the phones disconnected and no forwarding phone numbers or addresses given. Can you explain that 

to me? 

Mr. MITCHELL. That is the first I have heard. I have to look into 

that whether or not that is the district office or the disaster recovery office, or— 

Mr. MELANCON. I would expect disaster recovery because it is in 

the city area. 

Mr. MITCHELL. Both of those are in the same building. But I can 

check into that. 

Mr. MELANCON. I wish you would. 

Mr. MITCHELL. Yes. 

Mr. MELANCON. Mr. Jefferson touched on some of the things 

about the SBA paydown. And I agree with him. I think it is absolutely ludicrous. We are trying to help people recover. A loan is a 

loan and they have got to pay it back. A grant is a grant and that 

is going to help them get back on their feet. And to tell then they 

have got to give money back because it is Federal money, all we 

are doing is sending money from this end of the Government and 

then sending it back from the other end of the Government. And 

you are not doing them any good. Government is just getting its 

money circulated around. 

But with the bridge financing, you mentioned that the Administration has concerns over the Section 203 of this bill would create 

a bridge financing program in SBA. And I am aware that there was 

one major problem experienced by our business post Katrina. They 

waited six to eight months for SBA disaster loans, even longer for 

disbursements. And had to wait ten months for large scale state 

bridge loan financing. 

I understand that the position of the Administration is that state 

funded bridge loans are state programs financed by Community 

Development Block Grants funds are the solution. Not having SBA 

provide immediate short term financing to keep business afloat 

after a catastrophic disaster. 

Why would the SBA oppose being given additional tools that 

could be used following another catastrophic disaster? 

Mr. MITCHELL. Well, I think the issue here is whether or not we 

would have to basically fund both sides of it, the administrative 

costs on both the guarantee side and also doing it direct. I mean 

there is no question that there is a need for direct immediate assistance. The question is, you know, how do we come up with a solution that basically does not increase the cost of the program? 

Mr. MELANCON. So SBA is not about helping Americans get back 

on their feet after a disaster. They are about worrying about the 

program costs. And, of course, I look at what has happened right 

now with Dumas, Arkansas. They are not getting much better 

treatment. 

The Administration believes that the States and not the SBA 

should be the conduit for the bridge loans, is that what you are 

telling me? 

27

Mr. MITCHELL. Well, I think in looking at this proposal the question is how can we basically come up with a solution that minimized the cost of the program and provide the assistance to the 

small businesses that they need. This is one of the reasons why the 

Administrator is so focused on the operational side that we can 

eliminate some of the problems and delays and provide that assistance through the program and through the process that we have 

in place. 

Mr. MELANCON. Mr. Jefferson touched on, and I will go back and 

ask, why would the SBA oppose providing more tools to itself to 

help the people after disasters? 

Mr. MITCHELL. I do not think SBA’s opposed to having additional 

tools. I think the focus is how do we come up and identify solutions. 

I mean we agree that there is a problem that needs to be solved. 

The question is how do we work through and come up with a solution that balances both sides of it, from a costing standpoint and 

what the small business actually needs. 

Mr. MELANCON. Well, we have been 18 months. We have not 

come up with a solution, have we? 

What I hope to accomplish and with the help of the Members of 

Congress that have been willing to give us the help is to prevent 

anybody in any part of this country from having the experience 

that the people in the Gulf Coast have had with SBA, with FEMA, 

with all the agencies. And I would plead with you to go back to 

your agency and implore that they make this operation work for 

the people and quit giving them the run around. Americans don’t 

deserve that. 

Thank you. 

I would yield back my time. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I have two more questions, if I may. 

Mr. Witt, in your testimony you described the SBA disaster loans 

as being tools in the Federal Government’s tool chest assisting disaster victims. Carrying this analogy further, do you believe that 

the SBA should have a variety of financial assistant tools to meet 

the diverse needs of disaster victims in the wake of a disaster? 

Mr. WITT. Absolutely. You know, the FEMA programs under the 

Stafford Act are not programs designed to help people for long 

term. They are designed for short term, 18 months or a little longer 

to help people to get a roof over their head and their family, temporary housing, individual family grants up to 10,000 or so if they 

can make their home habitable. 

SBA’s loans for homeowners and small businesses are an essential process of short long term recovery. I think the grant program 

is interesting, particularly if it is going to help a small business to 

recover much faster and make a taxable income back into that 

community much faster. 

Also, let me just share if I may. I was in New Orleans at 9:00 

at night meeting with three of the African-American bank presidents at 9:00 at night. These bank presidents were sharing with 

me, said you know here we are no deposits coming in. Here we are 

with mortgages on several churches. And how are we going to foreclose on this church when FDIC tells us we are going to have to 

foreclose on that church? 

28

You know, and Congressman Baker’s new legislation and looking 

at that and talking with her a little bit. But I think it is a novel 

idea with local banking and local lending institutions being a big 

part of a disaster, SBA disaster loan program. I really do. Because 

they know the local business. They know the local homeowner. 

They do business there. And you know what? It would help put deposits back in that local bank. 

Chairwoman VELA ́ ZQUEZ. Do you believe that the bridge loan can 

play a role in the SBA disaster loan programs? 

Mr. WITT. I think it is needed in catastrophic events. I do not 

think it is needed in every event. 

Chairwoman VELA ́ ZQUEZ. Thank you. Thank you. 

Mr. Alford, you testified in support of the creation of Association 

Administrator for Disaster Assistance. And the SBA said that is 

unnecessary. Based on your experience— 

Mr. ALFORD. I think we need to give some proper attention to 

major disasters. And you need someone who focuses full time on 

this event. It confuses me that they feel they have no need after 

Katrina and Rita and Wilma. I think it is almost insane. It is fighting reality. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now we are going to take a break, a recess, and come back. For 

the second panel we will be back in the next half hour. 

And I want to take this opportunity again to thank all of you for 

taking time to come here, express your views and your assessment 

as to where we are a month away from the next hurricane season. 

Thank you very much. 

(Whereupon, at 11:33 the Committee recessed to reconvene this 

same day at 12:09 p.m.) 

Chairwoman VELA ́ ZQUEZ. I call the Committee back to order. 

And we will continue with this second panel. I want to welcome 

all the witnesses, and I thank them for taking time to be here with 

us this morning. 

We are going to discuss access to capital legislation, how to modernize and improve some of the small business loan programs 

under SBA. 

PANEL II: MR. MICHAEL HAGER, ASSOCIATE DEPUTY ADMINISTRATOR FOR CAPITAL ACCESS, SMALL BUSINESS ADMINISTRATION; KATHLEEN ROTH, DDS, PRESIDENT, AMERICAN 

DENTAL ASSOCIATION; JEFFREY RODMAN, CEO OF ACTORS’ 

FEDERAL CREDIT UNION, ON BEHALF OF CREDIT UNION NATIONAL ASSOCIATION; DAVID MAIN, PRESIDENT, HAMILTON 

COUNTY DEVELOPMENT COMPANY, INC., ON BEHALF OF NATIONAL ASSOCIATION OF DEVELOPMENT COMPANIES. 

Chairwoman VELA ́ ZQUEZ. Our first witness is Mr. Michael Hager. 

Mr. Hager is the Associate Deputy Administrator for Capital Access at the United States Small Business Administration. The Office of Capital Access manages the Administration’s business loan 

programs and performs lender oversight functions at the SBA. 

29

STATEMENT OF MR. MICHAEL HAGER, ASSOCIATE DEPUTY 

ADMINISTRATOR FOR CAPITAL ACCESS, SMALL BUSINESS 

ADMINISTRATION 

Mr. HAGER. Thank you very much. And good afternoon. No 

longer good morning, but good afternoon, Chairwoman Vela ́zquez, 

Ranking Member Chabot. He is not here. And distinguished Members of the Committee. 

Thank you for inviting me to discuss the legislative proposals 

that you have indicated that effect business and our lending programs at the SBA. 

The SBA has experienced, as you know, significant growth in our 

programs over the last five years, more than doubling the number 

of 7(a) and 502 loans funded. The zero subsidy policy that has been 

adopted for both the 7(a) and the 504 has allowed the Agency to 

meet the financing demands of small businesses without the need 

for loan caps or suspension. 

Subsidy issues are very significant to the SBA. Zero subsidy has 

provided stability in the program, which is of the utmost importance to the lenders across the country who participate in our programs and deliver much needed financing to America’s entrepreneurs. 

We understand that the Committee is considering legislative 

changes to the SBA programs, particularly relating to taxpayer 

subsidy, lender participation and application processes and targeted products for veterans and businesses in low income communities. But I want to comment, however, before I specifically talk 

about these issues, I would like to share a few of the proposals 

from the SBA. 

To lead off with, national preferred lending program, the SBA already has a national program for approval and renewal. But we 

would like and appreciate statutory authority this activity. 

Lender oversight. The ability to charge the community development companies for the cost of reviews. It would provide the SBA 

with the means to conduct these reviews and to carry out the 

SBA’s responsibilities in this regard. 

Enforcement authority for small business lending companies. The 

SBA proposes language to reinforce the SBA’s authority to regulate 

and examine the SBLCs. 

A few other items. Real estate appraisal harmonization, leasing 

policy harmonization, use of systematic alien verification for entitlement programs. And finally secondary market guarantee fee. 

I would like to comment on the proposals recently forwarded to 

us by the Committee. To begin with, Section 101 fee reductions, the 

Administration remains opposed to the reintroduction of taxpayer 

subsidy for the 7(a). Reintroducing subsidy will have the effect of 

destabilizing the program and risking loan caps and temporary 

shutdown of the program due to appropriation process delays and 

shortfalls as we experienced a few years ago. 

Further, we believe it would not be consistent with the Federal 

Credit Reform Act and its requirements of agencies obligate the 

cost of loan guarantees based on current assumptions. 

Section 102 rule lender outreach, we share your commitment to 

ensuring participation of lenders in rural areas. And we continue 

to see the number of these loans increase in the market, substanVerDate 0ct 09 2002 17:45 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33617.TXT LEANN
30

tially I might add. However, such a program would need a structure to avoid duplication of existing urban programs that have 

been developed by the USDA. 

Section 103 making Community Express permanent. We support 

making the program permanent, however, we do oppose the provision requiring that loans under $25,000 have no collateral. We 

think in the long term this hurt the entrepreneur. Such a blanket 

policy may actually result in certain borrowers being left out of the 

program. 

Section 104 medical professionals. We believe that the borrower 

and lender subsidy included in the Committee’s legislation would 

have a significant upward of impact on the subsidy rate. 

Section 105 veterans participation. The Administration shares 

the Committee’s desire to make the benefits in the 7(a) program 

more available to veterans. However, we must point out the proposal will have, again, a significant upward impact on the subsidy 

due to the elimination of fees as proposed. 

Section 106 the alternative size standard recognized the Committee’s desire to adopt a simpler method for determining whether a 

business qualifies as a small business under the Business Act. 

However, we have concerns about the potential for misapplication 

to borrowers who are large businesses. The Administration looks 

forward to working with you to develop a better alternative size 

policy for our business financing programs. 

With regard to the 504 program, the Administration largely supports the provisions that focus 504 as a local economic development 

program. However, there are few provisions that we would like to 

express our concerns. 

Refinancing— 

Chairwoman VELA ́ ZQUEZ. Mr. Hager— 

Mr. HAGER. Yes, Madam. 

Chairwoman VELA ́ ZQUEZ. You are a regular in this Committee. 

You know what the red light means. 

Mr. HAGER. I failed to look. 

Chairwoman VELA ́ ZQUEZ. But how much time? If you could summarize. 

Mr. HAGER. One minute. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. HAGER. Finally, maximizing eligibility. The Administration 

must express its opposition to this provision. It would permit loans 

up to $6 million. We feel that the program that we have in the 

SBIC debenture program would be a better fit for that. 

And finally, Madam Chairwoman, we share the Committee’s desire to support small business development and continue the vital 

contributions that small businesses have made to the economy in 

the U.S. And on behalf of the SBA Administrator, Steve Preston, 

we look forward to working with the Committee to ensure that entrepreneurs have access to capital necessary to start, grow and 

strengthen their businesses. 

And I will look forward to your question. 

[The prepared statement of Mr. Hager may be found on page 66 

of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. HAGER. I’m sorry I went over. 

31

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Hager. 

Our next witness is Ms. Kathleen Roth. Dr. Roth is the President 

of the American Dental Association, the world’s largest and oldest 

professional association of dentists. The ADA represents over 

153,000 members, many of whom are members of the small business community. 

Thank you. 

STATEMENT OF KATHLEEN ROTH, DDS, PRESIDENT, 

AMERICAN DENTAL ASSOCIATION 

Dr. ROTH. Thank you, Madam Chairwoman and Members of the 

Committee. 

I am the President of the American Dental Association, but I am 

also a practicing dentist. I have a family practice, a private practice 

dentist in West Bend, Wisconsin, which is just north of Milwaukee, 

Wisconsin. 

I am pleased to offer the ADA support for your legislation that 

would establish the medical professionals in the designated shortage areas in Section 7(a) of the Small Business Act. 

The ADA represents 72 percent of our dental profession. Our association and all of our members believe that Americans all deserve 

access to quality oral health services. Unfortunately, than one in 

every five children that live in underserved populations sees a dentist even once a year. 

In Wisconsin we have been expanding our dental students’ clinical experiences to include opportunities to provide care not only at 

Marquette University School of Dentistry, but also in the rural 

communities of Wisconsin. Sometimes five or six hours north of 

Milwaukee the students will go off site and they will spend a period of about two weeks living in a hotel while providing comprehensive dental services to community health centers, sometimes 

privately owned large dental clinics. 

We feel very strongly that given the exposure to communities in 

severe need located in settings that most dentists graduating don’t 

commonly think about as establishing their practices in, will open 

the possibilities for these new graduates to consider establishing 

their practices in underserved areas. 

We have had some success with the new graduates going to these 

undeserved areas. And we could be much more successful with 

some increased financial incentives for establishing their practices 

in these locations. 

There are a number of barriers to increasing access to oral care. 

But one of the key barriers is the simple fact that the distribution 

or the location of dentists in some states and some local communities makes it very difficult for patients to seek care. 

Your legislation could play a very important role in overcoming 

that barrier. The overwhelming majority of dentists are small business people who would directly take advantage of the improvements in this Small Business Act. Any enhancements to the loan 

program could have a positive effect on oral health care access by 

influencing the locations of those choosing to locate their practices 

there. 

In fact, over 90 of all practicing dentists are private practice sector. And the vast majority of our private practice dentists operate 

32

independently owned, small solo practices or two dental practice offices. We employ on average 4.8 employees by each dentist. 

The SBA medical professional and designated shortage program 

is targeted at just the right people when we are looking to answer 

yet one more solution for access to care. 

In closing, Madam Chair, I would like to make suggestion for 

change in the legislation, something that we believe would 

strengthen this proposal. We believe that the bill could have a 

greater impact if the fees on the loan for the medical professionals 

under Section 104 were eliminated, just as they have been eliminated for the veterans in Section 105. 

We understand that the suggestion would add a little cost to the 

program, but we believe it is very warranted when are looking to 

answer some of the access problems and address the financial barriers to dentists who might really be looking to establish their practices in these underserved areas. 

So, I want to thank you very much. Thank you Members of the 

Committee for listening to me and allowing me to testify on behalf 

of the American Dental Association. And I look forward to your 

questions. 

[The prepared statement of Dr. Roth may be found on page 71 

of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Roth. 

And our next witness is Mr. Jeff Rodman. Mr. Rodman is the 

CEO of Actors’ Federal Credit Union, a cooperatively run bank and 

institution in New York, New York. Mr. Rodman represents the 

Credit Union National Association, the primary national trade association serving America’s credit unions. 

Thank you and welcome. 

STATEMENT OF JEFFREY RODMAN, CEO OF ACTORS’ FEDERAL CREDIT UNION, ON BEHALF OF CREDIT UNION NATIONAL ASSOCIATION 

Mr. RODMAN. Thank you. 

Good afternoon, Chairwoman Vela ́zquez and Small Business 

Committee. 

Thank you for inviting me to appear to express the support of the 

Credit Union National Association for the small business access to 

capital, Act 1332. 

CUNA would like to thank Representative Bean, the Chairwoman and the Ranking Member for sponsoring this important legislation. 

As stated, I am the President of Actors’ Federal Credit Union in 

New York City. We are located in the heart of New York’s theater 

district. Actors’ has over $86 million in assets and serves over 

16,000 members in the entertainment community. 

Founded in 1962 by members of Actors Equity Association, Actors’ serves some 75 different groups involved in theater, dance, 

music, television, motion pictures as well as behind the scene workers in makeup and hair, studio mechanics, camera, lighting and 

theatrical wardrobe. 

Actors’ serves its members with a broad array of financial services, including a small business lending program that responds to 

the unique needs and circumstances of our diverse membership. 

33

For example, Actors’ has made over $2 million in small business 

loans for financing musical instrument. Madam Chairwoman, although Actor’s is an active small business lender, we do not currently participate in SBA’s 7(a) program. We have received many 

inquiries about 7(a) loans from members seeking larger unsecured 

loans to purchase equipment for a production company or costumes 

for theater groups. Unfortunately, we have found the process for 

qualifying as an SBA lender and the requirements for underwriting 

and servicing individual loans to cumbersome and time consuming 

to recoup the expensive for the small size or number loans we 

might make. 

Recent increases in both lender and borrower fees only add to 

our concerns. The 7(a) program could be too expensive for both our 

credit union and many of our potential borrowers. 

Let me begin my formal testimony by commending the Chairwoman for her past leadership in offering amendments to appropriation bills to restore subsidy funding for the 7(a) program. 

CUNA was pleased to be part of a coalition of 20 business groups 

advocating for these important amendments. 

I would also like to personally thank the Chairwoman for her 

tireless efforts to push for all credit unions to participate in SBA 

programs at a time when there were only five credit unions participating. Today there are over 250 thanks to your efforts. 

While CUNA has actively supported increasing 7(a), its member 

credit unions have not been major participants in the program. 

Currently even with over 250 credit unions, there are still less than 

2 percent that offer SBA loans to their members. And several factors have discouraged larger number of credit union from participating as 7(a) lenders. 

The Credit Union Membership Access Act of 1998 capped the 

amount of business loans any credit union can make at 12.25 percent of total credit union assets. The cap has discouraged many 

credit unions from initiating business lending programs, including 

ours, and limited the program of qualified credit union lenders able 

to participate in the 7(a) program. 

Another factor which I have already mentioned is the burdensome paperwork of the 7(a) program, which added to the cost of 

hiring experienced lending staff or consultants make it almost prohibitive for smaller credit unions to even consider starting a 7(a) 

program. 

The move to a zero subsidy for the 7(a) program in 2005 has created further disincentives by forcing borrowers to pay substantially 

higher fees. As Chairwoman Vela ́zquez noted last year, this has 

meant additional fees for smaller to mid sized loans ranging from 

$1500 to $3000. 

How can Congress address these problems and make the 7(a) 

more affordable and accessible for both small business borrowers 

and small lenders? I have four points to make. 

First, CUNA strongly supports initiatives that will permit SBA 

to reduce borrower and lender fees for the 7(a) to the greatest extent possible. We urge this Committee and also the Appropriations 

Committee to approve the possible fiscal year 2008 funding levels 

for the 7(a) program. 

34

Second, CUNA urges support for provision in HR 1432 to restore 

and expand the 7(a) low documentation program, otherwise known 

as Low-Doc. Low-Doc made the 7(a) process more cost efficient for 

lenders to make smaller loans, and also to make smaller numbers 

of loans. 

Third, we support permanent authorization and expansion of the 

Community Express Loan Program which targets 7(a) loans to 

lower income communities and to minorities, veterans and other 

under represented groups. 

Given the historic mission of credit unions to meet the credit 

needs of all individual groups not adequately served by other financial institutions, the Community Express Program is a logical vehicle for increasing credit union participation in 7(a). 

Fourth, CUNA urges the Committee to consider other innovative 

programs to streamline 7(a) loan document of processing for credit 

unions and other small lenders. A possible approach might be creating a new prequalification program specifically targeted to small 

lenders rather than specific borrowers that would permit local technical assistant intermediaries to prequalify potential borrowers, 

match them with qualified local lenders and expedite final loan 

processing. 

In closing, I want to thank the Committee for this opportunity 

to discuss some of the recommendations included in my written testimony, and welcome the opportunity to answer further additional 

questions. 

Thank you. 

[The prepared statement of Mr. Rodman may be found on page 

78 of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

We are going to recess for like two or three minutes. We are just 

waiting for the Ranking Minority to come. He is like two minutes 

away. 

(Whereupon, at 12:27 p.m. a recess until 12:29 p.m.) 

Chairwoman VELA ́ ZQUEZ. Calling back to order. 

And I’ll recognize, Mr. Chabot, for the introduction of his witness. 

Mr. CHABOT. Thank you, Madam Chair. 

I would like to introduce someone from my District, David K. 

Main. He is the President and CEO of Horizon Certified Development Company, HCDC, which started back in 1983. 

While the SBA 504 program is HCDC’s flagship of economic development lending activity, HCDC also administers the Ohio Regional 166 Loan Program, Community Reinvestment Fund USA 

Program, the Hamilton County Economic Development Office and 

the Hamilton Business Center, a 70,000 square foot business incubator. 

Prior to joining HCDC Mr. Main served as a loan officer, staff 

attorney for Citywide Development Corporation in Dayton, Ohio, 

legal advisor for the Department of Community Development in 

Rockford, Illinois and commenced his economic small business development career as the first economic coordinator of the city of 

Xenia, Ohio. 

35

Mr. Main holds a juris doctorate, a doctor of Juris prudence and 

a bachelor of arts degree from a very fine institution, the University of Cincinnati. 

And we welcome him here this afternoon. 

Thank you, Madam Chair. 

STATEMENT OF DAVID MAIN, PRESIDENT, HAMILTON COUNTY 

DEVELOPMENT COMPANY, INC., ON BEHALF OF NATIONAL 

ASSOCIATION OF DEVELOPMENT COMPANIES. 

Mr. MAIN. Thank you, Congressman. 

I am here today to represent NADCO as a Board member and 

the more than 260 certified development companies across our 

country that provide financing to small businesses under the SBA 

504 loan guarantee program. 

I would like to thank Chairwoman Vela ́zquez, Ranking Minority 

Member Chabot and the entire Committee for giving me the opportunity to provide remarks on this important legislation, and for 

your continued support of the SBA 504 loan program and the CDC 

industry. 

The 504 loan program represents a unique public/private partnership which includes private lenders, and in our case recently 

credit unions, the U.S. Small Business Administration and more 

than 260 CDCs which provide much needed financing for small 

businesses for their expansion and growth. 

For over 25 years this national network of CDCs has worked 

with private lenders, the SBA and the small business concerns in 

structuring projects and approving loans on behalf of over 94,000 

small businesses. 

During the first year of the SBA 504 loan program in 1986, the CDC industry approved merely 487 loans, totaling over $115 million, which leveraged a total of $287 million in new business investment. However, during the most recent fiscal year in September 30 of 2006, just under 10,000 businesses received SBA 504 

financing, totally over $5.9 billion, which leveraged over $14 billion 

in new small business investment. 

I joined HCDC in 1983 as its first Executive Director and President when the predecessor to the 504 program, the 503 program 

was acted. Since then HCDC has approved over 828 SBA 504/504 

loans totaling over $214 million, which has leveraged over a half 

billion dollars in small business investments. 

You may recognize some of the companies that HCDC has funded 

with 504 loans, including AE Door and Window in Forest Park, Exercise and Leisure in Columbia Township, LaRosa’s Pizzeria on 

Boudinot and Hanky Winery over in Westwood. 

The legislation that the Committee has drafted for the first time 

in the history of the 504 program would define in statute the specific legislation framework as to how the 504 should be best structured and how the 504 program can best operate. The impact of 

this bill will be historic, and we look forward to offering comments 

on the following dramatic impacts of the legislation. 

First, for the first time the economic development mission and 

the value that CDCs bring to small business, the SBA into the 

community we serve would be defined in statute. This legislation 

recognizes that CDCs do more than merely process 504 loans. In 

36

essence, they marshal resources to help small businesses expand 

and to implement community economic development. 

Second, the legislation also recognizes that CDCs should be locally based economic development organizations that are connected 

to the communities they serve. It is also critically important to the 

CDC industry that the legislation impose high ethical standards 

that would prohibit one individual or his immediate family or her 

family with affiliates from controlling multiple CDCs, and we hope 

to continue in our work with your Committee on this important 

issue. 

Third, this bill also provides an opportunity to allow the 504 program to do more for companies located in lower income communities, which are disproportionately located in urban core areas and 

rural areas of our country. We hope to continue our work with the 

Committee in devising the best ways to make this happen. 

Fourth, although historically the SBA program has experienced 

a very low default rate, the bill recognizes that all CDCs should be 

required to either directly liquidate or contract with third parties 

liquidate defaulted loans in view of the decreased liquidation staff 

within the SBA. We heartily support that. However, we vehemently 

oppose charging CDCs for oversight fees with audits similar to 

what is being proposed and is being charged for banks and for regular 7(a) lenders. We are nonprofits, we support economic development and our fee structure is such that we cannot support the imposition of such oversight fees for outside audits and that. 

We also feel that refinancing could be a valuable addition to the 

504 program where we might have a more effective financing structure for small businesses and their expansion. 

Finally, we applaud you in this proposed historic legislation that 

will set the course for the future and clearly define the purpose and 

role of the CDC industry as a not for profit financial intermediaries 

that deliver small business programs and services in the best way 

possible for these businesses and for the economic development of 

their communities. 

We look forward to continue to work with the Committee on enactment of this bill. Thank you for your support. 

And I would be pleased to answer any questions regarding CDC 

or the 504 loan program. 

[The prepared statement of Mr. Main may be found on page 83 

of the Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr.Main. 

Mr. Hager, I want to address my first question to you. In your 

testimony you suggest that Section 101 of the Small Business 

Lending Improvements Act violates principle of credit reform. Mr. 

Hager, the Clerk is handing you a copy of the Credit Reform Act. 

Could you please point to the provision that says that the SBA can 

only make performance estimates on an annual basis? 

Mr. HAGER. We believe, and historically we have always— 

Chairwoman VELA ́ ZQUEZ. No. I am asking if you could point to 

the statute that you have in front you. You make reference to it. 

But I could save you time. Mr. Hager. 

Mr. HAGER. Yes, Madam. 

37

Chairwoman VELA ́ ZQUEZ. You will find a provision in 2 USC 661 

that conflicts with this bill. In fact, nothing in the Act will preclude 

the SBA from making the contributions specified in this legislation. 

Mr. JEFFERSON. Yes, Madam. We believe, and I will be glad to 

get back to you with my assertion. We still believe there is a conflict here. 

Chairwoman VELA ́ ZQUEZ. Mr. Hager, I am telling you there is 

not such conflict. 

Mr. HAGER. And I will— 

Chairwoman VELA ́ ZQUEZ. Not only I will save you time, I will 

save you an embarrassment if you start looking line-by-line because you are not going to find in any lines of the statute that it 

specifically prohibit. 

Mr. HAGER. I— 

Chairwoman VELA ́ ZQUEZ. Let us go to the next question. But if 

you do in your office, send it to us. 

Mr. HAGER. I would like to do that. 

Chairwoman VELA ́ ZQUEZ. Mr. Hager, in your testimony you suggest that the proposal to make the Community Express Program 

permanent may have constitutional ramifications. Would you 

please tell me and tell this Committee which court opinion you 

based your comments on? 

Mr. HAGER. The original Community Express Program was set 

up to favor certain communities. We believe that bias would be unconstitutional. 

We are making recommendations to pull that particular feature 

out for the future to where it is within the Constitution. 

Chairwoman VELA ́ ZQUEZ. Well, you raised the constitutionality 

ramifications of this— 

Mr. HAGER. Yes, Madam. 

Chairwoman VELA ́ ZQUEZ. Of the Community Express Program. 

You know that there is no court decision has ever considered the 

constitutionality of this program, has it? 

Mr. HAGER. None has been rendered at this point. 

Chairwoman VELA ́ ZQUEZ. Okay. 

Mr. HAGER. But my point is the way it was originally structured 

we believe presented constitutional issue. 

Chairwoman VELA ́ ZQUEZ. As I recall Mr. Hager, the Supreme 

Court has considered and upheld the constitutionality of SBA programs that help minorities. The 8(a) program. Does the SBA have 

any constitutionality concerns with the 8(a) program? Do you have? 

Mr. HAGER. I do not know any concern about the 8(a) program. 

Chairwoman VELA ́ ZQUEZ. Well, you know what? I find it quite 

convenient for the SBA to raise constitutionality concerns whenever it suits your policy positions. 

Mr. HAGER. Yes, Madam. I have raised this issue on one platform. And again, I believe going forward we will have no exposure. 

Chairwoman VELA ́ ZQUEZ. Mr. Hager, in your testimony you state 

that the medical professionals and veterans loan programs violate 

Federal credit policy because the loan guarantee percentages exceed 80 percent. Where in Federal law is this requirement? 

Mr. HAGER. I will specifically point out the reference that I made 

in my testimony, and I will present that to you. 

38

Chairwoman VELA ́ ZQUEZ. There is nothing in Federal law. In 

fact, it is or it might be an Administration policy? 

Mr. HAGER. I would be happy to clarify that issue. 

Chairwoman VELA ́ ZQUEZ. Now I recognize Mr. Chabot? 

Mr. CHABOT. Thank you, Madam Chair. 

Mr. Main, let me start with you, if I can. 

Do you have any comments on anything that should be included 

in your opinion in the legislation that may not have not been? Are 

there any changes that you would suggest in improving the bill? 

Anything along those lines. 

Mr. MAIN. In my 25, really 30 years with the 504 program, this 

is probably the best piece of legislation as far as the program and 

improvements in the industry that I have seen. And my feelings 

are there may be some details that need to be worked out, that we 

need to work out with the Committee. But this is one of the finest 

pieces of legislation dealing with the 504 program. 

Mr. CHABOT. Okay. Thank you. You mentioned some programs 

that and projects that you were involved in in Cincinnati. What are 

you proudest of relative to what you have been able to deal with 

at the various levels that you have been involved in this area back 

in our community? 

Mr. MAIN. There is probably three things. The first one is the 

SBA 504 program, because that is where we got our start and that 

has been our hub and our focus. It is an economic development program, but that enabled us to: (1) Set a culture where we are looking to deal with real businesses, real people, real money where we 

have to make loans, we have to approve, we have to fund, we have 

to close and we have to have loans repaid. And it has happened. 

And that set the culture. 

The second thing was probably our Hamilton County Business 

Center, the business incubator, which is the largest incubator in 

the State of Ohio and probably in the midwest with nearly 50 companies. We had over 200 that have gone through the program. 

Some of our graduates have taken advantage of SBA 504 loans. 

There is a wide array of tech-based business, minority businesses. 

Just a wide number of them. 

And I guess the third area would be the Economic Development 

Office and able to work with our local communities in order to 

bring in new investment and put together a number of economic 

development tools, be it loans from the SBA, loans from the State, 

maybe some other Federal types of support in order to make 

projects happen that otherwise because of the purse marketplace 

would not happen. 

Mr. CHABOT. Okay. Thank you very much. 

Mr. Rodman, if I could turn to you next. How much of the loan 

documentation associated with the 7(a) loan is necessitated by SBA 

regulation and how much is required because those loans are sold 

in the secondary market and required by purchasers of the loans. 

Mr. RODMAN. You probably missed my testimony, but I am not 

a 7(a) lender now. So I can’t speak to really critically specifically 

on those issues. But I know CUNA will get back to you on that. 

But I will say it was one of the things that has been deterrent 

for us to get into the program because when we talk to other credit 

union lenders who are in the SBA program, they have made it 

39

clear to us that we would have sufficiently a staff that would be 

able to handle this type of information. 

Under an SBA guarantee my understanding is that if the loan 

goes bad, that is only when you find out if the guarantee works or 

not. In other words, you do not get the prequalification prior to it. 

It is when the loan goes bad, then they look at the documentation 

and say well, you know what you did not dot that I and you did 

not cross that T and we are not paying on this one. So you are 

going to take the whole bill on this. 

Therefore, for us to get into the program, look at us for example. 

We are credit union with 30 employees. If I want to add one SBA 

lender who has the sufficient technical expertise, I am going to 

have to pay something like $60,000/$70,000. Now in my culture 

that is probably going to add about close to almost 10 percent of 

my salary increase. Now I am looking at increasing my salaries of 

my HR budget by 10 percent. And I have to do that in order to protect myself on the back end on this loan. Because if I do not have 

somebody that knows exactly where the Ts are to cross and where 

the dots are to dot, it is like I am going to be trouble if that loan 

goes bad on me. 

And then in addition to that, the other thing is working against 

the 12.25 percent asset cap that is mandated by the Credit Union 

Membership Access Act of 1998. I have got about $9 million in 

loans right now out in business loan. I have got a cap of about $11 

million. Now that means I got $2 million in there that I can lend 

to. 

Now I am going to hire somebody for $70,000 that I can only put $2 million into. It stops making sense for me. 

See, these are where the problems come in. 

I know that Chairwoman Vela ́zquez is talking about is taking 

that nonguaranteed portion so I can go over my cap and not have 

it applied to my cap. If that were to happen, that would make a 

whole new Belgium just there. That would be a great new Belgium. 

Because then I would say, okay, I can make as much SBA lending 

as I want to. It does not fit into my cap anymore. Okay. Now we 

are starting to talk in a place where I can really get the business 

here. 

Mr. CHABOT. Thank you. 

Chair, I am not sure if I have any time or not. I do not want to 

oppose on — 

Chairwoman VELA ́ ZQUEZ. You have time. 

Mr. CHABOT. Okay. Dr. Roth, given the amount of dental school 

debt and the average salary nowadays for a dentist, would the program set forth in Section 104 be sufficient incentive to entice a 

dentist to establish a practice in an underserved area in your opinion? 

Dr. ROTH. Well, certainly alone, no. But it is one more tool that 

would make a dental student who is graduating look at an underserved area very seriously. 

You know, they do have a lot of debt. A dental student might be getting out $200,000 in debt. And to look at establishing a practice 

in an underserved area where your basic patient base will be Medicaid or Government funded programs, there is a lot of risk there 

for a new dentist to create their lifestyle and live with their pracVerDate 0ct 09 2002 17:45 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33617.TXT LEANN
40

tice there. But I see this program as offering one more piece to that 

opportunity that could really make a difference there. 

Dentists and dental students do want to go home and practice a 

lot of times where they grew up. And if we can give someone the 

incentives and the financial viability to make that a strong possibility, I think it will make a difference. 

Mr. CHABOT. Thank you very much. 

And finally, Mr. Hager, and if you have already comment on this 

I apologize, but could you comment on how much overlap there is 

between the Community Express loans and the micro loans? 

Mr. HAGER. There is significant overlap. I have got some materials that—and if I cannot pull it out instantly, I will send it to 

you. But essentially between the Community Express program, 

SBX Express Program, if you look at Low-Doc 5/6 years ago and 

look at the loan volume, carry it forward to today, which dropped 

to zero, you will see an incredible increase in Community Express 

loans where the volume has increased substantially. And the same 

thing in Community Express. 

So we believe the Low-Doc was completely consumed by certainly 

the combination of Community and Express, and largely by the 

Community Express because of the features of the programs match 

very closely. 

Mr. CHABOT. Thank you very much. I yield back, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Dr. Roth, can you comment on why conventional 7(a) loans are 

inadequate to encourage medical professionals to open offices in underserved areas? Are lenders simply reluctant to make these loans 

due to increased risk or are your members discouraged from taking 

these loans because of the cost? 

Dr. ROTH. In my opinion I do not take they are discouraged from 

taking the loans because of the cost. I think there is not a significant difference in a commercial loan that is available to a new 

graduate. They have to have a very clear reason to take the small 

business loan and to practice in an underserved area. 

Dentists, quite honestly, are really not a bad risk in the financial 

world. They are a very low risk for paying back those loans and 

creating a solid dental practice. But when you do that in an underserved area, the reimbursements for their practice base are so low 

it makes it a very tenuous line to walk for a profitable business 

and a touch and go. 

So I see this as a significant additional piece that would really 

influence someone to that tipping point where, yes, I can make my 

practice work in that inner city of Milwaukee or downtown Chicago 

where the need is clearly there, and we want to address the access 

issue for all patients. But it still has to be a solid economic model 

for a small business to provide and continue their life there. 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Roth. 

Mr. Rodman, this legislation will enable the SBA to reduce the 

fee burdens on small businesses and lenders in the 7(a) program 

and will do so without disturbing the stability created under the 

current zero subsidy rate. How will this approach benefit credit 

unions? 

Mr. RODMAN. Well, I think it would be highly beneficial. I mean, 

in our relationship with our borrowers, with our members, every 

41

dollar counts, every fee and dollar counts when it comes into lending. I mean when we are talking about lending, we are talking 

about, you know, we are talking about $50,000, $60,000, $70,000. 

If you are talking a $100,000, if you get into the 3 percent range 

or something like that, you are all of sudden, you are starting to 

talk about 3 percent of the loan. 

So these costs are actually significant. They are significant carrying forward as that member moves into their business and starts 

working with their business. I mean these are not small—you 

know, I mean up here I know they look like small dollars. But 

when you are going out and buying inventory or whatever you are 

doing, these are significant dollars. 

Chairwoman VELA ́ ZQUEZ. The Small Business Lending Improvement Act will establish a rural lender average program to increase 

lender participation in the 7(a) program, particularly among small 

banks and community lenders by reducing application burdens for 

borrowers and lenders and streamlining the lending process. Would 

this program also encourage more credit unions to participate in 

the program. 

Mr. RODMAN. Absolutely. Anything that can reduce the paperwork trial will help a great deal. Again, going back to a credit 

union our size, which we are relatively typical, you know 86 million, we are about in the middle where everybody stands. When I 

look at myself and I look at the jobs that are taking place of people 

on the ground, we work full tilt all day long. I come along and I 

have so many new things that have to be together. I have to keep 

with the debit card program and add rewards to my debit card program, et cetera. And then you come and you bring an SBA program 

in and you say, okay, and here is the SBA program. And all of a 

sudden you look at it, and it is blindingly big and you go like let 

me put that one off until tomorrow. And that is what happens. 

And then we start looking at—and I have talked to people about 

the lending process for one or two loans and the difficulties they 

have to go through. And I think like I have got a loan officer that 

has to get mortgages out, has to get home equities out, have to get 

credit cards out, has to get car loans out, has to get personal loans, 

has to get secured loans and they have to do deal with all those 

loans. And I say now I am going to take their energies and try to 

cram that much more time, I got to a new person, et cetera. 

So, yes, streamlining this would make an incredible difference. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Chabot, you have any other questions? 

Mr. CHABOT. Madam Chair, if I could just ask one question. 

Chairwoman VELA ́ ZQUEZ. Sure. 

Mr. CHABOT. On behalf of one of our colleagues who was here 

earlier but had to go to another meeting and wanted to ask this 

question. 

Mr. Hager, it would be addressed to you. If I own a franchise and 

cannot get the franchisor to pay my debts, would it be fair to say 

that most people would assume the franchisee and franchisor are 

independent? 

Mr. HAGER. I would like to get back with you with a statement. 

And I will consult with our legal department and get you an answer to that. 

42

Mr. CHABOT. That is fine. 

Mr. HAGER. If that is okay? 

Mr. CHABOT. That is fine. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Okay. Well, with this concludes this 

hearing. 

I want to thank you again for being here for answering our questions. 

And the Chair would like to ask unanimous consent to enter into 

the record opening statements of Members that are not present at 

this moment. 

And with that, we are adjourned. 

[Whereupon, at 12:53 p.m. the Committee adjourned.]

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