```

[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]

             SHUTDOWN LESSONS: SBA CAPITAL ACCESS PROGRAMS

=======================================================================

                                HEARING

                               BEFORE THE

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           FEBRUARY 26, 2019

                               __________

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]                               
                               

            Small Business Committee Document Number 116-004
             Available via the GPO Website: www.govinfo.gov
             
                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
34-741                       WASHINGTON : 2019                     
          
-----------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).E-mail, 
[email protected].                            
             
             
             
             
             
             
             
             
                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          ANDY KIM, New Jersey
                         SHARICE DAVIDS, Kansas
                          JARED GOLDEN, Maine
                          JASON CROW, Colorado
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                                 VACANT
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                        TRENT KELLY, Mississippi
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania

                Adam Minehardt, Majority Staff Director
     Melissa Jung, Majority Deputy Staff Director and Chief Counsel
                   Kevin Fitzpatrick, Staff Director
                            
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
                                                                   
                                                                   
Hon. Judy Chu....................................................     1
Hon. Ross Spano..................................................     2

                                WITNESS

Mr. William M. Manger, Associate Administrator, Office of Capital 
  Access, United States Small Business Administration, 
  Washington, DC.................................................     3

                                APPENDIX

Prepared Statement:
    Mr. William M. Manger, Associate Administrator, Office of 
      Capital Access, United States Small Business 
      Administration, Washington, DC.............................    11
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
             SHUTDOWN LESSONS: SBA CAPITAL ACCESS PROGRAMS

                              ----------                              

                       TUESDAY, FEBRUARY 26, 2019

                  House of Representatives,
               Committee on Small Business,
                    Subcommittee on Investigations,
                                Oversight, and Regulations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:01 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Judy Chu 
[chairwoman of the Subcommittee] presiding.
    Present: Representatives Chu, Burchett, and Spano.
    Chairwoman CHU. Well, good morning. The committee will come 
to order. We thank everyone for joining us this morning, and I 
want to especially thank our witness for being here today.
    The recent government shutdown was an acutely painful 
experience for our Nation's small businesses. It was 35 days of 
missed paychecks, delayed loans, and strained budgets for too 
many of our Federal employees, contractors, and small business 
owners. Perhaps most concerning to small firms was the she 
uncertainty of how long the shutdown would last.
    Though the government is now back open, the damage to our 
economy is lasting. During the shutdown, so many entrepreneurs 
and small business employees took extraordinary measures to 
make ends meet, and they are still fighting to get back on 
their own two feet. It is clear that no business or family 
should be put in this position. Not only were business owners 
feeling the pain, several Federal agencies had to plan for the 
worst and cease operations, and the Small Business 
Administration was one of them.
    Ironically, the one Federal agency with the sole 
responsibility of helping small firms was in the position of 
not being able to do its job. The shutdown forced SBA to 
suspend many of its critical services, including the processing 
and approval of small business loans. This included the Office 
of Capital Access and loans made under SBA's 7(a), 504, and 
Microloan programs. As a result, SBA could not approve loans 
that were already within the SBA system, nor could they take on 
any new loans. This essentially froze all SBA-backed lending 
activities for 35 days.
    The good news is that the government is back open again, 
and SBA is back to processing and approving loans for small 
businesses. Yet, I know the agency has much to do in order to 
adequately ensure the stability of small business financing.
    Today's hearing gives us the opportunity to hear from 
Associate Administrator for the Office of Capital Access, Bill 
Manger, about how he and his office handled the prospect of a 
protracted lapse in appropriations, the challenges that he and 
his team faced upon reopening, and what guidance the office 
gave borrowers and lenders seeking loan guarantees during the 
shutdown.
    It is important we understand the extent of economic 
injuries caused to entrepreneurs as they sought capital, many 
of whom rely specifically on SBA loans because they have had 
trouble securing affordable credit elsewhere.
    I look forward to today's hearing, and I thank Mr. Manger 
for testifying. I would now like to yield of the Ranking Member 
of the subcommittee, Mr. Spano, for his opening statement.
    Mr. SPANO. Thank you so much, Madam Chair. It is a 
privilege to serve with you on the committee. And I look 
forward to supporting you, and I look forward to a very, very 
productive term here serving with you on this committee.
    Thank you, Madam Chair, again. Small businesses are coming 
off a banner year of increased optimism levels and confidence 
scores. From investing in their businesses, their workers, and 
their communities, the Nation's smallest firms were busy in 
2018. Positive economic news has continued in 2019 with U.S. 
unemployment near record lows, real wage growth, and wage gains 
across the Nation.
    But despite these trends, small businesses, entrepreneurs, 
and startups still face headwinds when it comes to financing 
their endeavors. Landing a conventional or traditional bank 
loan is often out of reach for them; thus, putting their 
American dream on hold. With all other options exhausted, small 
businesses have the ability to turn to the Small Business 
Administration, and there are many capital access programs to 
assist with financing needs.
    Unfortunately, last month's partial government shutdown 
halted many of SBA's programs and created a buildup of loans 
waiting to be processed. With SBA again up and running, I look 
forward to today's hearing focusing on SBA's Office of Capital 
Access. The Office of Capital Access administers some of SBA's 
most important government guaranteed programs including the 
7(a) loan program, the 504/CDC loan program, and the Microloan 
program. All three of these programs partner with financial 
institutions to deliver assistance to creditworthy firms that 
cannot access traditional or conventional lending markets. Due 
to lender fees in the programs, many of them are and have been 
running at zero cost to the American taxpayer.
    Combined, these programs support hundreds of thousands of 
jobs on an annual basis. From my home State of Florida which is 
approximately 3.3 million individuals employed in the small 
business sector to Ohio and beyond, these jobs are transforming 
the country's economy.
    I look forward to hearing from the Associate Administrator 
regarding the operating plans that they have in place during 
and after a government shutdown, and additionally, I am looking 
forward to an open discussion on other matters in SBA's lending 
world in 2019.
    In my humble opinion, Congress must continue to create an 
environment where small businesses, entrepreneurs, and startups 
can flourish, grow, and create jobs. Simply put, when they are 
moving forward, so is the American economy.
    Thank you, Madam Chairwoman, and I yield back.
    Chairwoman CHU. Thank you, Mr. Spano. And if Committee 
Members have an opening statement prepared, we would ask that 
they submit it for the record.
    I would like to take a minute to explain the time rules. 
Mr. Manger will get 5 minutes to testify. Each Member gets 5 
minutes for questioning. There is a lighting system to assist 
you. The green light will be on when you begin, and the yellow 
light will come on when you have 1 minute remaining. The red 
light will come on when you are out of time, and we ask that 
you stay within that timeframe to the best of your ability.
    I would like to now introduce our only witness today, Mr. 
William Manger. Mr. Manger is the Associate Administrator for 
the Office of Capital Access at SBA. He has held this role 
since March 2017 and is responsible for the SBA's loan program 
policy, technology, operations, and oversight.
    Prior to his current SBA appointment, Mr. Manger served as 
Managing Director at Brock Capital Group, a boutique investment 
bank in New York City, where he advised and supported small to 
medium-size enterprises in their efforts to raise capital and 
expand their businesses. From 2007 to 2009, he served as 
Associate Administrator for Field Operations at SBA. Mr. Manger 
holds an MBA from the Columbia Business School and a BA from 
Trinity College in Hartford, Connecticut.
    Welcome, Mr. Manger. You are now recognized for 5 minutes.

STATEMENT OF WILLIAM M. MANGER, ASSOCIATE ADMINISTRATOR, OFFICE 
 OF CAPITAL ACCESS, UNITED STATES SMALL BUSINESS ADMINISTRATION

    Mr. MANGER. Thank you, Chairman Chu, and Ranking Member 
Spano and Members of the Subcommittee. I appreciate the 
opportunity to testify today about the recent Federal funding 
lapse and the status of our SBA lending programs. With several 
new Members on the Subcommittee and before discussing the 
lapse, I thought it might be helpful to talk briefly about SBA 
and the Office of Capital Access.
    As many of you know, the SBA provides tools and resources 
that are of great value to America's 30 million small 
businesses. SBA's programs have been helping small businesses 
get on their feet and grow since our inception in 1953. Our job 
in the Office of Capital Access is to administer programs that 
make capital available to entrepreneurs who would otherwise be 
unable to access capital through conventional means.
    While the SBA works with lenders to provide loans to small 
businesses, the agency doesn't lend money directly to small 
business owners. Rather, we reduce risk for lenders through 
loan guarantees. These lending programs, however, were closed 
during the lapse in appropriations. For a total of 20 full 
business lending days, SBA was unable to approve loans and was 
not able to accept new loan applications. Throughout the lapse, 
we posted a notice on our financial system, and I engaged 
industry as needed to respond to questions.
    We also closely examined our program functions to make sure 
we complied with the Antideficiency Act. While most routine 
activity in the Office of Capital Access ceased to operate, a 
few excepted and exempt operations were functional. These 
included the administrative closing of certain previously 
approved and obligated 504 loans, limited lender oversight and 
risk management of our loan portfolio, Microloans through the 
intermediaries since they had already received funding, 
disaster loan processing through our servicing centers, and our 
online lender match platform which automatically matches small 
businesses seeking financing with SBA approved lenders.
    Once funding was restored for SBA operations, our loan 
systems were immediately operational, and we published an 
information notice to notify all lenders that SBA was open for 
business. As a result of process improvements put in place by 
Administrator Linda McMahon, our ability to get back to 
business was greatly enhanced. For example, by the end of 2018, 
we had cut in half the time it takes to process and approve 
loan applications. These developments played a key role in 
dealing with the volume of applications once our systems were 
again open.
    To provide you an update on that progress, as of this past 
Friday, SBA has now approved over 7900 loans for a total of 
$3.7 billion since we resumed operations on Monday, January 28. 
I am very proud of the hard work and dedication of our SBA 
employees. Through their efforts, we are now back to pre-lapse 
levels in all of our lending categories. This includes loan 
origination, and loan modifications in our 7(a) and 504 
programs.
    I also want to share with the committee some action that we 
took in response to your February 12 hearing regarding the 
funding lapse. In that hearing, the committee heard from a 
local brewing company who was interested in expanding their 
operations through an SBA loan guarantee. At the time of the 
hearing, however, SBA has not received any paperwork from them. 
And in response to that hearing, our staff reached out to that 
company. I wanted to let you know that we have since received 
their request and approved their loan modification.
    Madam Chair and Members of the Subcommittee, thank you 
again for inviting me to testify. I look forward to your 
questions and continuing to work together on behalf of small 
businesses across the country. Thank you.
    Chairwoman CHU. Thank you, Mr. Manger. I will begin by 
recognizing myself for 5 minutes.
    Mr. Manger, the shutdown essentially froze all SBA-backed 
lending, but many loan applications had already been submitted 
to SBA prior to the shutdown and were pending review when the 
government shutdown began. At the same time, lenders continued 
submitting loan applications to SBA for approval during the 
shutdown. This means that there were two sets of pending loan 
applications, those that were submitted pre-shutdown and those 
submitted during the shutdown. In total, how many such loan 
applications were pending when SBA reopened?
    Mr. MANGER. Madam Chairwoman, so when the lapse in 
appropriations took place at midnight on the 21st of December 
or the 22nd of December, we had probably about a couple hundred 
loans that had come in on a non-delegated basis. But just so 
you understand, most of our loans, over 80 percent of our 7(a) 
loans come in on a delegated basis. That means they come into 
our electronic system and are funded in real-time. In fact, in 
a matter of seconds.
    So that is the majority of our 7(a) which is our largest 
program. Those that did not come in on a delegated basis, that 
come into our centers on a non-delegated basis to be reviewed 
by SBA staff, we had probably a couple hundred, and those we 
were unable to process at that time.
    In the 504 program, though, the way the 504 program 
operates, we actually approve and obligate the funding of those 
loans when the loan application comes into our system. So what 
we did during the shutdown is we had some excepted employees 
that were able to close 504 loans that had come in prior to the 
lapse in appropriations that had been already approved and 
obligated, so those were taken care of.
    In terms of those that came in during the shutdown, we 
turned our system off, our CAFS, our central service system 
off, when the shutdown took effect. So actually, there were no 
loans coming into a queue during the shutdown. Once the funding 
had been restored and the lapse was over in January, we 
reopened that Monday morning, the 28th of January, with the 
funding that we had on the CR, and all the loans then that came 
in at that point were handled.
    So really, there was no backlog of loans in the system 
because the system actually had been shut down.
    Chairwoman CHU. But you did have some that were non-
delegated. So how did your office strategically work through 
this backlog of loans? For example, did you prioritize by date, 
loan amount, or some other factor?
    Mr. MANGER. So what we did was we did do it on a first in, 
first out basis, FIFO basis. We did also, in our information 
notice, that we sent out to the public once we reopened in 
January, we said to our lending partners that if there was an 
urgent loan that needed to be taken care of because the 
applicant was up against a deadline, they had a way to send an 
email to our center. That loan would be specifically 
prioritized, which we did in several instances where the 
borrower was up against a deadline that needed to be met.
    So once we reopened, again, we brought on some additional 
resources, and we were able to work through the huge volume. I 
mean, $3.7 billion since January 28 is pretty spectacular. And 
all of those have been approved. And in fact, the different 
categories for loan modifications, we are down now to pre-lapse 
levels, and we were able to do that within 4 weeks.
    Chairwoman CHU. So as a result of the shutdown, small 
businesses were in dire need of financing because SBA lending 
programs were not available. And you said that for those 4 
weeks, that basically shut down the loan application process. 
When you opened up again, did you see an uptick in loan 
applications?
    Mr. MANGER. Absolutely. We had a tremendous amount of 
volume come in in the first several days, and it actually has 
remained high. We have now come back actually a little bit 
stronger than the position we had been pre-lapse, so you know, 
we have seen an incredible increase in our lending over the 
last month.
    Chairwoman CHU. Let me also ask. Is there any way to 
insulate lending programs from being frozen due to a lapse in 
appropriations and to be able to have other entities be able to 
take over this process of lending if there is such a shutdown?
    Mr. MANGER. So Chairwoman Chu, because of the Anti-
deficiency Act, we are prohibited from putting guarantees on 
the loans as we usually do. We would be encumbering assets of 
the Federal Government that we didn't have a right or 
authorization to do. And so, because of the Antideficiency Act, 
we were unable to make new loans during the lapse in 
appropriations.
    I do want to point out that the one program that actually 
was still up and running during the lapse in appropriations 
was, in fact, the Microloan program. The way the Microloan 
programs works, it is actually a program where we make a loan 
to a not-for-profit lending intermediary who in turn makes the 
loan to the small business.
    Much of the authorization and the appropriation for those 
microlenders had been made to the lenders prior to the lapse in 
appropriations, so they already had money that they then could 
loan to the small businesses. And during the lapse in 
appropriations, our microlending partners were continuing to 
make microloans.
    And in fact, our Microloan program this year is doing 
extremely well. We are up 3.5 percent over last year's record. 
We have had a record in that program recently, and I am very 
pleased to tell you some of the statistics on that program; it 
is doing extremely well. In fact, in the last year we have 
increased our lending to African Americans in that program by 5 
percentage points, 33 percent used to be what we would lend in 
that program to African Americans. This past year, it has gone 
up to 38 percent, so we are very pleased with the performance 
of the Microloan program.
    Chairwoman CHU. Well, thank goodness for that. Well, my 
time has now expired. The Ranking Member, Mr. Spano, is now 
recognized for 5 minutes.
    Mr. SPANO. Thank you, Madam Chair. Thank you, Mr. Manger, 
for coming, and thank you for your testimony, and thank you for 
your very good work with the programs. And kudos to you for 
getting the program up and going so quickly, for getting caught 
up, and thank you for providing us regular updates as to the 
status of that process, and we appreciate that very much.
    I have a few questions. It has been a busy couple of 
months, obviously. Can you share with us what your office has 
planned for the remaining part of the fiscal year, calendar 
year? Do you anticipate rolling out any new policy notices, 
SOPs or other regulations? And also, if so, can you provide a 
timeline and details?
    Mr. MANGER. Sure. Thank you very much for that question. So 
in fact, just last week, we rolled out an update to our SOP. It 
is SOP 50 10 5K, and so it was following on from the J that had 
been launched last year. We try and have updates to that 
program on an annual basis if we can to keep up with the 
market. And again, we launched--we introduced it, but it does 
not take effect until April 1, so it gives us time and our 
lenders time to adjust to any of the changes in the SOP for 45 
days. And again, we will be out, you know, providing classes 
and webinars with the lenders prior to the April 1, you know, 
effective date.
    We also currently have a rulemaking that is in process. 
This was actually primarily to promulgate rules for our Express 
program which has existed actually for 20 years and has never 
operated on rules. It was only operating on SOP, and that is 
not good policy. So one of the first things I did when I came 
into this position was say we need to promulgate rules for the 
Express program because all of the programs should be operating 
under regulation and not just SOP.
    So that was launched where we actually made it available to 
the public at the end of September, and we are going through 
the comments that we have received. We have received an awful 
lot of comments, so we are going through that. Then it has to 
go to OMB for review, and then finally, the final rule will 
probably be promulgated sometime later in the summer.
    Mr. SPANO. Good. Thank you. You already answered my second 
question, so thank you for doing that.
    The last Congress that then Chairman Chabot and former 
Ranking Member Velazquez introduced H.R. 4743, The Small 
Business 7(a) Lending Oversight Reform Act of 2018. It went on 
to pass the House and the Senate, and the President signed that 
into law last June. Can you provide the committee an update on 
how the implementation of this law is coming and any next steps 
that we should be anticipating?
    Mr. MANGER. Sure. Thank you very much for that question 
too.
    So part of that law, there was a report that was due to 
Congress by December 1 of this year. We got that to the 
committees, and we are implementing through regulation and 
actually, in some aspects of the SOP, updates so that we are in 
compliance fully with the statute that passed and was signed by 
the President last June.
    I believe we have 1 year to finalize that rule, that 
legislation in rulemaking, and so we are going to be able to 
meet that deadline by the end of June. I think it was the 21st 
of June last year that the President signed the bill, so we 
will make that deadline. And we are working diligently on that, 
and we take very seriously the operations in our office of 
credit risk management.
    Mr. SPANO. Excellent. Thank you so much. And then, if you 
would, for those of us who don't have a real in-depth 
understanding of the programs, give us an idea, if you would, 
what you believe the greatest challenges are that we face in 
2019 with regard to the 7(a) program, the 504/CDC, and the 
Microloan. What is it that you would like to achieve, and what 
are the challenges that you face this year?
    Mr. MANGER. One of the challenges we are taking on is to 
make sure that our loan programs are available to all Americans 
no matter where they live. We have put into effect a fee 
reduction for loans made in rural areas as well as HUB zones, 
Historically Underutilized Business zones, because we want to 
make sure that again, people that need loans that live in rural 
America as well as in HUB zones have access to the loans that 
we make available.
    And so we have offered fee relief on loans up to $150,000 
if they are made in a HUB zone or a rural area, and that is one 
of our big initiatives. Administrator McMahon signed an MOU 
with Secretary Sonny Perdue of the Department of Agriculture. 
And we are working jointly with Agriculture to make sure we are 
reaching out to the rural parts of the country and making sure 
that we have a robust lending environment in rural parts of the 
country as well.
    Mr. SPANO. Thank you. Madam Chair, I yield back.
    Chairwoman CHU. Thank you. The gentleman's time has 
expired, and now the gentleman from Tennessee, Mr. Burchett, is 
now recognized for 5 minutes.
    Mr. BURCHETT. Thank you, Chairlady. It is actually 
Burchett, birch like the tree, and et like I just et breakfast, 
so thank you. Thank you so much, Chairlady, and I appreciate 
that. I always enjoy it when somebody misspeaks my name so that 
I can correct them like that, and so it is all in good fun.
    Thank you, Ranking Member Spano, for the great work you 
have done. It has been enjoyable working with you, brother.
    I had a bunch of questions, but I think they have already 
been asked, but there was one that I was concerned about, and 
maybe you have answered this or not. If you have, just tell me 
to go on and watch the notes, okay. But is there any 
legislation that we as Congresspeople can focus on to help 
access to capital for small business owners, any legislation 
that is coming down the pike or some that may be just in your 
wish book that you have?
    Mr. MANGER. Thank you very much for that question. You 
know, the President's budget will be coming out in March, but I 
can speak about last year's budget. We did ask that we increase 
the maximum for Express loans. These are usually smaller loans 
that rely heavily on the lenders' underwriting criteria. And in 
exchange for that, we reduce the guarantee from the Federal 
Government on average from 75 percent down to 50 percent. So it 
is a great program because it is only a 50 percent risk to the 
taxpayer, and we would like to see that program increased from 
$350,000 which is the cap right now to $1 million.
    In fact, during the Recovery Act, the program was allowed 
to go up to $1 million. Then that expired, that sun set, but we 
are asking through the President's budget again to increase the 
cap on Express loans up to $1 million. So that is something we 
think would be very helpful.
    The Express program has not been performing as well lately, 
and we think that is because the cap is too low. Even if you 
took into effect inflation, we would be well over half a 
million dollars now in that program. So it needs to grow with 
the times, and anything you can do to help us increase the 
Express Loan cap, we would appreciate it.
    Mr. BURCHETT. All right. I am writing some notes down. You 
sparked my interest. You said the taxpayers are only on the 
hook for 50 percent. How does that work? Is that some of that 
new math I have been hearing about, or is that----
    Mr. MANGER. So the way our programs work, Congressman, is 
the Federal Government places a guarantee on our 7(a) loans 
which is our largest program. Last year we did over $25 billion 
in the 7(a) program. So we put a guarantee on average of 75 
percent. If it is a small loan, in fact, the guarantee goes up 
to 85 percent, so that is how we mitigate risk to our lending 
partners, and they are able to make loans to individuals and 
small businesses that they would not normally make a loan to 
because they don't meet their conventional criteria.
    In the Express program, because we give more authority to 
the lender and their own underwriting criteria, we lower, we 
decrease the guarantee from the Federal Government down to only 
50 percent, but the lenders like it because it is much easier 
for them to process those loans. It is much faster.
    The program is greatly used as a revolving line of credit 
for those businesses that need a revolver in place to be able 
to draw upon when they need it. For example, they might have a 
seasonal business, and they need to draw money at certain times 
of the year. So that is a great program. And again, because we 
reduce the guarantee that the taxpayer is on the hook for down 
to 50 percent, it is a benefit to the taxpayer as well. But the 
$350,000 cap is just, at this point, too low, and we would like 
to see that increased.
    Mr. BURCHETT. How are they--you said that these are loans 
that normally wouldn't be able to be made because of some 
circumstances. Are they bad risks? Give me an example. You 
don't have to give me the bureaucrat thing. I am running out of 
time, and I want to get--you go ahead.
    Mr. MANGER. Sure. So here is an example, you know. There 
are many people who would like to start a restaurant. And if 
they go into their bank and they say look, I am wanting to open 
a restaurant. I have never been in the restaurant business, but 
I would like to start this business. I know I would be good at 
it. I am a great cook. I want to open this business, and the 
bank says you know what? That is just way too high risk an 
industry. We can't give you a loan for that. You have no 
experience. We are not going to do it.
    But with the SBA guarantee, we mitigate that risk to the 
lender. Again, on average, a 7-day loan is a 75 percent 
guarantee. So by taking that guarantee and putting that in 
place, the lender then says all right. My risk is mitigated at 
least by 75 percent. We are going to take that risk on. We are 
going to make this loan to you so that you can open that 
restaurant that you have always wanted to open.
    Mr. BURCHETT. Okay. One last question.
    Mr. MANGER. Sure.
    Mr. BURCHETT. I have got 13 seconds. How much is a 
Microloan?
    Mr. MANGER. A Microloan goes up to $50,000. But what is 
really interesting is the average size of a Microloan is only 
$14,000, and that is very, very impactful for the businesses, 
the small businesses that need just that amount of capital. And 
we have seen tremendous growth in that program, and we hope 
that it will continue to grow.
    Mr. BURCHETT. Okay. Thank you.
    Sorry, Chairlady. Sorry Chairlady I went over. I apologize, 
ma'am.
    Chairwoman CHU. Thank you for the questions, and we want to 
thank the witness for taking time out of his schedule to be 
here today.
    The bottom line remains that for 35 days, our country's 
main avenue for responsible small business lending was shut 
down. Though we may never fully know the exact magnitude of the 
shutdown, we do know that the impact on the economy was far 
more severe than our country's entrepreneurs deserve. I think 
my colleagues on the other side would agree that it should 
never happen again.
    So I thank you, Mr. Manger, and your whole team that got 
right back to work on day one after the shutdown to get our 
entrepreneurs back on their feet, and already you have made the 
SBA whole.
    I would ask unanimous consent that Members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
committee, we are adjourned. Thank you.
    Mr. MANGER. Thank you.
    [Whereupon, at 10:30 a.m., the subcommittee was adjourned.]
                           
                           
                           A P P E N D I X

                     Statement of William M. Manger

                        Associate Administrator

                        Office of Capital Access

                   U.S. Small Business Administration

                               before the

                   House Committee on Small Business

       Subcommittee on Investigations, Oversight, and Regulations

      Hearing on ``Shutdown Lessons: SBA Capital Access Programs''

                           February 26, 2019

                    State of William Manger

                    Associate Administrator

               U.S. Small Business Administration

    Thank you, Chairwoman Chu, Ranking Member Spano, and 
members of the subcommittee for inviting me to speak with you 
today. It is my pleasure to appear before you as the 116th 
Congress gets underway. I look forward to building a strong and 
open relationship with all of you moving forward.

    As some of you may know, the SBA provides tools and 
resources that are of great value to America's 30 million small 
businesses, which account for over 58 million jobs. As 
Associate Administrator for the U.S. Small Business 
Administration's (SBA) Office of Capital Access, it is my job 
to administer programs that make capital available to small 
business entrepreneurs who would otherwise be unable to access 
capital to start or expand a business through conventional 
means.

    Before assuming my role as the Associate Administrator for 
the Office of Capital Access, I had the honor to serve the 
agency as the Regional Administrator for Region 2, based out of 
New York, from 2005 to 2007, and then as the Associate 
Administrator for the Office of Field Operations in Washington, 
D.C. from 2007 to 2009. From the beginning of my time with the 
SBA, I have been able to witness the positive impact our 
programs have on communities across the country.

    America's small businesses are our nation's innovators and 
job creators, and I am committed to serving as their advocate. 
The role that the SBA and the Office of Capital Access plays in 
our credit markets fills an important gap in the lending 
marketplace. Our agency aims to help small businesses obtain 
credit that is otherwise unavailable through conventional 
lending. As many of you are aware, entrepreneurs certainly have 
the will and drive to succeed, but at times, access to capital 
unfortunately proves to be an insurmountable hurdle. That is 
where we come in. The SBA works with lenders to provide loans 
to small businesses. The agency doesn't lend money directly to 
small business owners but does reduce the risk for lenders 
through loan guarantees. Our programs have been helping small 
businesses get on their feet and grow since our inception.

    During the last two years, Administrator Linda McMahon has 
placed an emphasis on agency governance to ensure that our 
entire agency, including our Office of Capital Access, is 
running as efficiently and effectively as possible. Her 
leadership before, during, and after the recent lapse in 
appropriations, has greatly improved our ability to get back to 
business.

    Regarding the lapse, and in addressing today's hearing 
topic, my testimony will focus on three areas:

          1. How the recent lapse impacted SBA's loan programs;

          2. What actions the Office of Capital Access took 
        during the lapse;

          3. An update on SBA's loan program operations since 
        funding was restored by Congress.

    Due to the funding lapse, our business lending and surety 
programs were closed from December 22 through January 27, a 
total of 20 full business lending days. SBA was unable to 
approve loans during this period and was not able to accept new 
loan applications. Applications for SBA-guaranteed surety bonds 
were also not able to be processed by SBA. All new secondary 
market 7(a) loan pools were stopped and purchasing of SBA-
guaranteed loans was also halted. Throughout the lapse, our 
Capital Access Financial System contained the following notice:

           Due to the lapse in appropriations, SBA is 
        not able to approve new 7(a) or 504 loans. Please refer 
        to the SBA website at www.sba.gov/partners/lenders for 
        more information on SBA's 7(a) and 504 loan programs. 
        Limited staff is available at SBA's servicing and 
        liquidation centers to continue 7(a) and 504 loan 
        program servicing and liquidation activities.

    While most routine activity in the Office of Capital Access 
ceased to operate, a few excepted and exempt operations were 
functional during the lapse. These included:

           The administrative closing of certain 
        previously-approved and obligated 504 loans;

           Continued applications and servicing actions 
        on disaster loans (SBA's Office of Disaster Assistance 
        uses the loan program operations of the Office of 
        Capital Access to process and service disaster loans); 
        and

           The online Lender Match platform, which 
        automatically matches small businesses seeking 
        financing with SBA-approved lenders.

    During the lapse, I remained engaged with external 
stakeholders, including the trade associations, to help 
communicate information to lenders, as necessary. We also took 
steps to ensure that there would be no impairment to government 
property while the loan program operations were idle. For 
example, the Director of the SBA Office of Credit Risk 
Management was brought in as an excepted official to ensure 
that risk management in the SBA loan portfolio, including 
critical, time-sensitive lender reviews and oversight, was not 
significantly compromised.

    Once Congress restored funding for SBA operations, our loan 
program systems were immediately operational on Monday, January 
28, and normal business in the Office of Capital Access 
resumed. An Information Notice was published to notify all 
lenders that SBA was open for business. The detailed notice 
covered such topics as interim loans, servicing actions, report 
filings, as well as expedited requests.

    Since the agency resumed full operations, I am proud to 
report on our progress. Through February 14, our lending data 
is as follows:

           6,075 7(a) loans have been approved for a 
        total of $2.64 billion;

           588 504 loans have been approved for $416 
        million;

           800 secondary market loans pending sale have 
        been processed;

           Surety bond applications have all been 
        reviewed and processed with $188 million in bond 
        guarantees having been approved.

    Over 80% of SBA 7(a) guaranteed lending is submitted to SBA 
by preferred SBA lenders on a delegated basis, and SBA can turn 
those applications around in a matter of days. 7(a) and 504 
loans that are not submitted under delegated processing are 
sent to SBA loan processing centers for review. Under 
Administrator McMahon's leadership, SBA has dramatically 
improved the time it takes to review and process a non-
delegated loan for a guarantee at the centers. In fact, the 
turn time has been cut in half by implementing process 
improvements over the last two years.

    That said, there are non-delegated loans that have been 
submitted for review since January 28 that we estimate will 
take additional time. Our loan processing centers are 
expediting urgent loan application reviews while also ensuring 
fairness so that loans are processed as they have come into the 
system. We have also budgeted overtime to allow for loan center 
staff to address these loans. As of now, the agency feels it 
can handle any resource needs through our existing budget.

    In conclusion, SBA's loan programs are fully operations, we 
have made significant progress in approving new loans, and we 
are actively addressing any delays in our non-delegated loan 
processing reviews. I am committed to ensuring that the Office 
of Capital Access works efficiently in supporting small 
businesses seeking financing after the lapse in appropriations.

    Thank you, Chairwoman Chu, for inviting me to testify here 
today. I look forward to answering your questions and 
continuing our work together to help advance small businesses 
across this country.

                                 [all]
```