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24–525 2017

AN OVERVIEW OF SBA’S 7(A) LOAN PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS, 

OVERSIGHT, AND REGULATIONS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 9, 2017 

Small Business Committee Document Number 115–008 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

DON BACON, Nebraska 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

VACANT 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Staff Director 

JAN OLIVER, Chief Counsel 

ADAM MINEHARDT, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Trent Kelly ...................................................................................................... 1 

Hon. Alma Adams .................................................................................................... 2 

WITNESSES 

Ms. Sonya McDonald, Executive Vice President and Chief Lending Officer, 

Randolph Brooks Federal Credit Union, Universal City, TX, testifying on 

behalf of the National Association of Federally-Insured Credit Unions .......... 4 

Ms. Cindy Blankenship, Vice Chairman, Bank of the West, Grapevine, TX, 

testifying on behalf of the Independent Community Bankers of America ...... 5 

Mr. Tony Wilkinson, President and CEO, National Association of Government 

Guaranteed Lenders, Washington, DC ............................................................... 7 

Mr. Edward C. Ashby, III, President & CEO, Surrey Bank & Trust, Mount 

Airy, NC, testifying on behalf of the American Bankers Association .............. 8 

APPENDIX 

Prepared Statements: 

Ms. Sonya McDonald, Executive Vice President and Chief Lending Officer, Randolph Brooks Federal Credit Union, Universal City, TX, testifying on behalf of the National Association of Federally-Insured Credit 

Unions ............................................................................................................ 22 

Ms. Cindy Blankenship, Vice Chairman, Bank of the West, Grapevine, 

TX, testifying on behalf of the Independent Community Bankers of 

America .......................................................................................................... 37 

Mr. Tony Wilkinson, President and CEO, National Association of Government Guaranteed Lenders, Washington, DC .............................................. 51 

Mr. Edward C. Ashby III, President & CEO, Surrey Bank & Trust, 

Mount Airy, NC, testifying on behalf of the American Bankers Association ................................................................................................................. 57 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

CUNA - Credit Union National Association ................................................... 63 

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SBREP-219A with DISTILLER

(1) 

AN OVERVIEW OF SBA’S 7(A) LOAN PROGRAM 

THURSDAY, MARCH 9, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND

REGULATIONS, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 11:00 a.m., in Room 

2360, Rayburn House Office Building, Hon. Trent Kelly [chairman 

of the Subcommittee] presiding. 

Present: Representatives Kelly, Chabot, Blum, Bacon, Marshall, 

Adams, and Vela ́zquez. 

Chairman KELLY. Good morning. Thank you all for being with 

us today. I call this hearing to order. 

Our startups, our entrepreneurs, our small businesses, the true 

engines of our economy, continue to experience a rigid lending environment. While large companies are turning to debt and equity 

markets to raise capital, small businesses all over the country regularly turn to conventional bank lending to finance their projects. 

At times, small firms cannot access conventional lending, so they 

have nowhere to turn for the capital to grow their business or create jobs. Despite being creditworthy, they often do not have the 

proven track record for traditional lending. Instead of turning away 

the next great American company, lenders can work with small 

businesses and provide access to SBA’s numerous lending programs. 

We are here to talk about one of these lending programs today. 

The Advantage Loan Program, widely known as the 7(a) Loan Program, provides creditworthy small businesses the opportunity to receive capital if traditional lending is not available. The program, 

which is currently running at zero cost to the American taxpayer, 

does not provide direct loans; rather, the SBA offers guarantees of 

repayments made to lenders. With the recent growth of the program in terms of loan approvals, loan amounts, and the congressionally authorized lending limit, it is important for our Committee 

to comprehensively review the program. Does SBA have the correct 

tools in place to provide oversight? Where should there be improvement? Is the Credit Elsewhere Test, the test which determines 

whether or not a small business is able to obtain capital from traditional options, strong enough? 

The hearing today will kick off a series of conversations focused 

on the 7(a) Loan Program. 

Today, the Subcommittee will hear directly from the lender’s 

window, those financial institutions participating in the program. 

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I appreciate each of the witnesses for being here today. I look forward to your testimony. 

I now yield to Ranking Member Adams for opening remarks. 

Ms. ADAMS. Thank you, Mr. Chair. And I want to thank Ranking Member Vela ́zquez for being here as well. And to all of our witnesses. 

With the economy showing continued growth, it is important to 

ensure that small businesses have the tools and the resources that 

they need to prosper. And in order for small firms to play their traditional job-creating role, a number of factors must be in place. Perhaps the most important ingredient is the availability of capital. 

Lending through the Small Business Administration is always critical for entrepreneurs seeking affordable capital to start new ventures and expand existing businesses. 

SBA loan programs fill a critical gap in the market for small 

businesses that cannot access traditional lending sources. In particular, SBA’s 7(a) Loan Program is a public-private partnership 

that helps private lenders provide capital to small businesses that 

would not normally qualify for credit on reasonable terms. In recent years, 7(a) loans have experienced unprecedented growth, 

making this hearing particularly timely today. While over 64,000 

loans totaling $24 billion was supported in fiscal year 2016, only 

26 percent of 7(a) loans went to minorities, and only 18 percent to 

women-owned firms. This is simply unacceptable. 

In addition to these underwhelming numbers, the SBG OIG has 

identified lender oversight as a serious management challenge for 

SBA. The OIG first raised their concerns in fiscal year 2001, and 

the issue continues to this very day. As the 7(a) Loan Program 

grows, it is vital for the SBA to have the resources in place to conduct lender oversight and to guarantee that all entrepreneurs, no 

matter what gender or race, have equal opportunities to utilize the 

program. 

I look forward to hearing from our witnesses and gaining their 

insights on making the SBA’s flagship program work even better 

for small businesses. It is vital that loans in the 7(a) programs are 

targeted to businesses who need them most, particularly those who 

have been unable to secure capital through private channels. Putting capital in the hands of businesses that need it most will help 

further the economic development of America’s small businesses. 

So on that note, again, I would like to thank our witnesses for 

taking time to be here. Your views and experiences, of course, will 

be valuable to the Subcommittee as we consider how best to meet 

the entrepreneurs’ capital needs. 

Thank you, Mr. Chair. I yield back. 

Chairman KELLY. Thanks to the ranking member. And this is 

such a bipartisan Committee, and I really thank the ranking member for her support and being here today and her timely comments. 

If the Committee members have an opening statement prepared, 

I ask that they be submitted for the record. 

I would like to take a moment to explain the timing lights to you. 

You will each have 5 minutes to deliver your testimony. The light 

starts out as green. It will turn yellow, and finally, after, when you 

have 1 minute remaining, that means start wrapping up, and finally, at the end of your 5 minutes, it will turn red. I ask that you 

SBREP-219A with DISTILLER

3 

try to adhere to the time limit and in my first Committee chairman 

not make me tap you out today. 

Our first witness—I am going to introduce the three and then I 

will allow the ranking member. 

Our first witness is Sonya McDonald. Ms. McDonald is an executive vice president and chief lending officer for Randolph Brooks 

Federal Credit Union in Universal City, Texas, which is located in 

southcentral Texas. She has been serving credit union members in 

various roles at Randolph Brooks Federal Credit Union for years, 

including numerous executive level and leadership positions. Along 

with being a recipient of the Presidential Volunteer Service Award, 

Ms. McDonald was named to the San Antonio’s 40 Under 40 List 

and is a graduate of the University of Texas at Austin. She is testifying today on behalf of the National Association of Federally-Insured Credit Unions. 

Our next witness is Ms. Cindy Blankenship. Ms. Blankenship is 

the vice chairman of Bank of the West in Grapevine, Texas. Having 

opened Bank of the West in 1986 with her husband, Ms. 

Blankenship has been a leader in community banking for many 

years. Ms. Blankenship is a former chair of the Independent Community Bankers of America and has testified before numerous congressional committees. She has been recognized in the past as one 

of the 50 most powerful women in banking. Ms. Blankenship is testifying today on behalf of the Independent Community Bankers of 

America. 

Our next witness is Tony Wilkinson. Mr. Wilkinson is the president and chief executive officer of the National Association of Government Guaranteed Lenders. For over 25 years, Mr. Wilkinson 

has been at the helm of the Association which represents the 7(a) 

lending industry. Before coming to NAGGL, Mr. Wilkinson was an 

executive at Stillwater National Bank. He has served as a member 

of the SBA’s National Advisory Council and as a member of SBA’s 

Investment Advisory Council. He has also been a recipient of SBA’s 

National Financial Services Advocate of the Year Award. 

And I now yield to our ranking member. 

Ms. ADAMS. Thank you, Mr. Chair. 

I am so pleased to introduce Ted Ashby, a native of Mount Airy, 

North Carolina. I represent North Carolina, and we are happy to 

have a Tarheel in the place today. Mr. Ashby has a bachelor’s degree in business administration and economics. He has held numerous positions in the banking industry, including branch administrator, chief lending officer, special assets manager, and senior 

vice president. In 1996, Mr. Ashby created Surrey Bank and Trust. 

As president and CEO, he has grown the bank to $278 million in 

assets, with six branches and a loan production office. He is testifying today on behalf of the American Bankers Association. Welcome, Mr. Ashby. 

Chairman KELLY. And again, thank you to the distinguished 

panel. 

And Ms. McDonald, you are recognized for 5 minutes, and you 

may begin. 

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STATEMENTS OF SONYA MCDONALD, EXECUTIVE VICE PRESIDENT AND CHIEF LENDING OFFICER, RANDOLPH BROOKS 

FEDERAL CREDIT UNION; CINDY BLANKENSHIP, VICE 

CHAIRMAN, BANK OF THE WEST; TONY WILKINSON, PRESIDENT AND CEO, NATIONAL ASSOCIATION OF GOVERNMENT 

GUARANTEED LENDERS; EDWARD C. ASHBY, III, PRESIDENT 

AND CEO, SURREY BANK AND TRUST 

STATEMENT OF SONYA MCDONALD 

Ms. MCDONALD. Chairman Kelly, Ranking Member Adams, 

and members of the Subcommittee. Thank you for the invitation to 

appear before you this morning. 

My name is Sonya McDonald, and I am testifying today on behalf 

of NAFCU. I am the executive vice president and chief lending officer at Randolph Brooks Federal Credit Union. In this role, I am responsible for a $6 billion portfolio that encompasses consumer, 

mortgage, and commercial lending. I appreciate the opportunity to 

share with you my experience with the Small Business Administration’s 7(a) Loan Program. 

RBFCU became a SBA preferred and express lender in September of 2005. We are delegated with SBA authority and are able 

to offer all of their products. In 2016, we were the number one SBA 

lending credit union in our 55 county district. SBA products allow 

us to leverage our lending dollars, mitigate the risk associated with 

the loans, and extend more credit to our community small businesses. Our current portfolio has 232 active SBA loans with a balance of approximately $22 million. 

There are many stories of small business owners looking for that 

loan that will allow them to either start or grow their business. 

While other institutions may have scaled back their small-dollar 

business lending, credit unions have been willing to fill that void. 

At RBFCU, we are pleased that we have been able to step up to 

help meet the demand. SBA 7(a) loans make it easier for credit 

unions because the government-guaranteed portion of these loans 

does not count towards the arbitrary credit union member business 

lending cap. 

In San Antonio, we have a great bagel shop, the Bagel Factory, 

owned by an Air Force veteran and his wife. They went to 20 different places and were denied before coming to Randolph Brooks 

for an SBA loan. That business is now in its seventh year and 

thriving. 

Another example is a loan we did for a 100 percent disabled military veteran. With the help of a SBA express line of credit, he was 

able to secure 8(a) certification, and he can now fulfill software development contracts for the military. 

Two years ago, NAFCU signed a memo of understanding with 

SBA to help address the challenge of getting more credit unions involved in the SBA. The MOU formalized a joint partnership that 

aims to increase the availability of small-dollar loans by providing 

more outlets for entrepreneurs to access SBA products in their 

neighborhoods, and it makes the small-dollar loans more accessible 

to underserved communities, including women and minorities. 

We appreciate the work SBA has done and have some ideas on 

how to make the program stronger. One area where the SBA can 

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5 

help credit unions is to provide clarity. Sometimes when we email 

the SBA directly with a specific question about standard operating 

procedures, the response is nothing more than a screenshot of the 

website. We have also seen an example of a loan submitted through 

general processing where the SBA processor did not follow the 

SOP. It was a loan that required us to place a second lien on a borrower’s rental property. Normally, we would use the tax assessed 

value on the home, but in this case, the processor insisted we use 

the value estimated by Zillow.com, which was not anywhere in the 

procedure manual. 

If SBA would publish a best practices and clarify guidance, it 

would go a long way to helping credit unions when they are making SBA loans. 

At RBFCU, we would also like to see the length of time it takes 

to approve a loan shortened. Right now it can take 8 weeks or 

longer. 

For RBFCU and other credit unions, it would also be beneficial 

if the new SBA One software better integrated with the lending 

software used by the majority of lenders, something the old software used to do. 

In conclusion, small businesses are the driving force of our economy and the key to its success. The ability for them to have access 

to capital is vital for job creation. While SBA’s 7(a) program provides opportunities to established and struggling businesses, there 

are several relatively simple steps that could propel the program 

to its full potential, some of which the SBA can take without legislation. We urge Congress to do what is necessary to ensure these 

programs are successful. 

We thank you for your time and the opportunity to testify before 

you today on this important issue. I welcome any comments or 

questions you might have. 

Chairman KELLY. Ms. Blankenship, you are now recognized for 

5 minutes. 

STATEMENT OF CINDY BLANKENSHIP 

Ms. BLANKENSHIP. Chairman Kelly, Ranking Member Adams, 

and members of the Subcommittee, I am Cynthia Blankenship, vice 

chairman, CFO, and corporate president of Bank of the West in 

Grapevine, Texas, an over $450 million community with 105 employees and serving the Dallas-Fort Worth suburban area. I am 

also a former chairman of the Independent Community Bankers of 

America, and I am pleased to testify today on behalf of more than 

5,800 community banks represented by ICBA. 

A robust 7(a) program with broad community bank participation 

will help small business thrive and create jobs. We are grateful for 

this Committee’s strong support of the 7(a) program. Bank of the 

West is a 30-year partner with the Small Business Administration 

and a leading SBA lender in the Fort Worth District. We currently 

hold and service nearly $100 million in high-quality SBA loans 

with a minimum loss ratio. Historically, Bank of the West 7(a) 

loans have created thousands of jobs in the communities we serve 

and help sustain and strengthen our local economy. 

Bank of the West uses the 7(a) Loan Program to supplement our 

lending and credit services by reaching a broader range of borSBREP-219A with DISTILLER

6 

rowers who would not qualify for a conventional loan. To safeguard 

the program from abuse, the SBA’s Credit Elsewhere Test requires 

us to fully substantiate and document the reasons a given applicant cannot be served with conventional credit. The typical conventional small business loan has a maturity of 1 to 3 years because 

it is funded with short-term deposits. However, 7(a) program loans 

have average maturities of 16 years or more. The program even allows for loan terms up to 25 years. These longer terms lower the 

entrepreneur’s loan payments and free up needed cash flow to hire, 

invest, and grow the business. When another recession occurs, the 

longer loan term may help many small businesses weather the crisis. 

Bank of the West has been a preferred SBA lender for 30 years. 

This program is available to lenders with a proven track record, a 

successful SBA lending whose lending policies and procedures have 

been thoroughly vetted by the SBA. Once approved, a preferred 

lender can use streamlined procedures for processing SBA loans 

and make final credit decisions in-house. This is a critical advantage because it allows us to avoid a delay of up to 3 weeks at the 

SBA approval offices. 

As an SBA preferred lender, we can be responsive to our credit 

applicants, and if they qualify, provide the funds in a timely fashion. 

Stable funding is critical to the success of the 7(a) program and 

the thousands of borrowers who rely on it. While the program is 

fully funded by user fees, an authorization level must be approved 

by Congress each year, and once that level is reached, no more 

loans can be approved. 

The program authority came to an abrupt halt in the summer of 

2015 when it reached its authorization cap well before the end of 

the fiscal year. Congress was forced to pass an emergency increase 

to the authorization cap to restart the program. ICBA greatly appreciates the support and responsiveness of this Committee in 

passing that emergency increase. Thankfully, a hiatus was short 

lived. A longer program shutdown would have cut off the thousands 

of small businesses that rely on the program for payroll, investment, and expansion. We must work together to ensure that the 

program funding is never disrupted again. One way we might better achieve this funding stability is by creating a 2-year funding 

commitment and have it be renewed every year. 

I have focused my remarks today on the 7(a) program. However, 

taking a broader perspective, I urge this Committee to support regulatory and tax relief that would strengthen community banks and 

enable more small business lending in SBA programs and in conventional markets. 

ICBA’s plan for prosperity is a robust set of legislative recommendations, many of which serve the same goal as the SBA, creating more small business credit that will in turn create economic 

growth and jobs. A copy of the plan is attached to my statement, 

and I would encourage you to read it and discuss it with the community bankers in your districts. 

Thank you again for convening this hearing. I am happy to answer any questions you may have. 

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7 

Chairman KELLY. Thank you, Ms. Blankenship. It is always 

nice to hear somebody who does not have an accent. 

Mr. Wilkinson, you are now recognized for 5 minutes. 

STATEMENT OF TONY WILKINSON 

Mr. WILKINSON. Good morning, Mr. Chairman, Ranking Member Adams, and other members of the Committee. I am Tony 

Wilkinson. I am the president and CEO of the National Association 

of Government Guaranteed Lenders. I am happy to be here today 

to talk about the very successful SBA 7(a) program. It is a publicprivate partnership that works as there are almost 2,000 financial 

institutions who participate in the program, reaching about 65,000 

small businesses annually. These lenders make private sector loans 

to small businesses who are credit worthy but fall into the wellknown lending gap that small businesses face. 

Through the 7(a) program, lenders are able to meet the long-term 

financing needs of their small business customers. That means we 

can appropriately finance a long-term asset with a long-term loan. 

The significant majority of conventional loans, as Ms. Blankenship 

mentioned, have original maturities of 3 years or less, and the bulk 

of those loans actually have maturities of 1 year or less. So banks 

are really good at doing short-term financing, but with the SBA 

product we are able to do long-term financing. Again, financing 

those long-term assets with a long-term loan. 

And as Ms. Blankenship said, our original maturities in an SBA 

7(a) program are 16 years. And so those longer maturities mean 

lower payments for those small business borrowers. And when 

small business can get the financing that they need, they can expand and grow and create jobs. It has been estimated that well 

over 500,000 jobs are created or retained annually thanks to the 

7(a) program. 

Over the last several years, use of the program has grown dramatically. Loan volume in fiscal year 2016 was over 25 percent 

greater than it was just in fiscal year 2014, meaning more and 

more small businesses are being served. But it also means we have 

been operating at or near our congressionally authorized annual 

authorization cap. This fiscal year, under the current continuing 

resolution, the 7(a) program has a $26.5 billion authorization cap. 

Based on current loan volumes and projected growth, we anticipate 

lending about $26 billion net this year. So again, we are going to 

be getting very close to our annual cap. 

I want to make sure that we understand that that is a net number. Our gross lending will probably exceed the cap somewhat. And 

as loans for whatever reason do not get closed, they get canceled, 

and so we get down to a net number, but it is very likely that our 

gross lending will exceed our cap, but it is the net lending number 

that is important. 

As funding measures are considered with the April 28th expiration of the continuing resolution, a modest bump up in our authorization cap would be appreciated just to make sure that we have 

sufficient funds to get through this year as predicting future loan 

volumes, as you might imagine, is a very difficult task. Please keep 

in mind that the 7(a) program operates at a zero credit subsidy, 

meaning no appropriations are needed. The estimated costs of the 

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program are paid for by the fees charged to lenders and borrowers. 

So let me repeat. No Federal appropriations are needed to fund 

credit subsidies for this program. 

It is a long-held belief in our association for this program to pass 

the test of time to be here for small businesses for many years to 

come, it has to be a program of integrity. The program must be 

used the right way. That is what we teach in our training programs. It is what we expect from our members. It is why we understand that it is in the program’s best interest to have SBA engaged 

in a sustained, efficient, and cost-effective oversight program to 

maintain that integrity. NAGGL has worked, and will continue to 

work, with the SBA and this Committee and SBA’s Office of Credit 

Risk Management to ensure that integrity. 

With that, I will close my remarks and be happy to answer any 

questions. 

Chairman KELLY. Thank you. And Mr. Ashby, you are now recognized for 5 minutes. 

STATEMENT OF EDWARD C. ASHBY III 

Mr. ASHBY. Chairman Kelly, Ranking Member Adams, and 

members of the Subcommittee, I am Ted Ashby, president and 

CEO of Surrey Bank and Trust, headquartered in Mount Airy, 

North Carolina. I appreciate the opportunity to present the views 

of the ABA on the importance of the SBA Advantage Loan Program, widely known as the SBA 7(a) program for community banks 

like mine. 

Our bank was chartered in 1996 with a focus on business lending. We are intentionally focused on building and maintaining longterm relationships with our customers. The success of Surrey Bank 

is linked to the success of our community. They are all our neighbors. 

Community banks like mine actively pursue small business 

loans, which is critical to the economic growth and job creation in 

our area. The SBA program supports this with the help to fill a 

critical gap particularly for early stage businesses that need access 

to longer term loans. The guarantee helps reduce the risk and capital required for banks and facilitates loans that may never have 

been made without this important level of support from the SBA. 

In 1999, Surrey Bank began using SBA to help local companies 

meet their credit needs. This is an integral part of our business 

model. We have 174 active loans with an average loan size of 

$200,000, which demonstrates that the 7(a) program is very important to us and to our community. In total, 19 percent of our business loans are insured by the SBA, and 13 percent of all our loans 

are insured by the SBA. Our active involvement in SBA has earned 

Surrey Bank the ‘‘Community Bank of the Year’’ award in North 

Carolina 12 of the past 14 years. 

Let me give you a couple of examples to show the importance of 

SBA to our community. We extended credit to a precast concrete 

company that opened its doors in 2007, a terrible time to open. 

With the recession, economic activity was weak and the borrower 

had difficulty generating enough working capital to fund new orders. Our bank used the SBA’s Cap Lines Contract Loan Program 

to fund these individual orders until they could be completed and 

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the business paid. This company now generates sufficient cash flow 

to fund its operations without the SBA or bank assistance. 

My second example, we extended credit to a woman-owned company that is engaged in traffic and safety control and highway and 

bridge construction. This company started in 2004 with four employees and just two trucks. Since inception, we granted 23 SBA 

loans to this company to help fund their expansion. Today, the 

company has over $12 million in revenue, 90 employees, and a fleet 

of over 100 vehicles and assorted other equipment. Quite a success 

story. 

But our success is replicated over and over across communities 

in America in the banking system. This is why the ABA supports 

the Small Business Committee’s efforts to build on the positive aspects of the program and consider improvements that would benefit 

the business climate in our communities. 

I have noted in my written statement many positive features of 

the 7(a) program. The central focus of these features is that they 

reduce the cost of the transaction, lower general collateral requirements, provide faster response times, improve cash flow, and reduce the amount of working capital needed to operate the business. 

All of these facilitate loans that may have never been possible 

under conventional financing where under conventional financing 

you would require an abundance of collateral. You have a guarantor that has a strong secondary source of repayment, and you 

would most likely have shorter loan amortizations. 

However, improvements can be made to any program. Primarily, 

this is involved in the servicing aspects. These include consolidating loans, allowing portfolio lenders to obtain a guarantee to 

avoid regulations on loans to one borrower limitations, facilitating 

and offering compromise in cases where they may be in liquidation 

through multiple programs, and making the SBA One platform 

fully operational to reduce our paperwork. 

In conclusion, the SBA’s 7(a) program is a success and should be 

supported in the future. It has encouraged economic growth and allowed Surrey Bank to meet the credit needs of many small and diverse businesses in our small portion of the state of North Carolina. 

ABA strongly believes that our communities cannot reach their 

full potential without the presence of a local bank. Last year 251 

banks disappeared. Since Dodd-Frank was enacted, nearly 2,000 

banks have merged or closed their doors. If the pressures on our 

small banks are not relieved, the loss will be felt far beyond the 

bank and its loss of employees for that bank. It will mean something significant has been lost in that community that was once 

served by the bank. That is why it is imperative that Congress 

take steps to enhance the banking industry’s capacity to serve their 

customers and facilitate job creation and economic growth. 

Thank you. I will be happy to answer any questions. 

Chairman KELLY. I want to once again just thank the distinguished members of the panel. Thank you so much for what you 

bring. 

I think one of the main things that is important to me, and I recognize myself for 5 minutes, so I will hold myself to the same 

thing, but one of the most important things is this 7(a) Loan ProSBREP-219A with DISTILLER

10 

gram costs us, or costs the taxpayers nothing. So I think that is 

very important. So it is a great program because there is no cost 

associated with while creating small businesses or helping them to 

create small businesses it does not cost. 

And this first question is for the entire panel, but I will start 

with—I will let Ms. Blankenship answer first and then we can go 

along the list. From the lender’s perspective, can you describe the 

Credit Elsewhere Test and the steps you take to verify whether a 

small business can obtain capital from another source? 

Ms. BLANKENSHIP. We look at the Credit Elsewhere Test and 

go through the parameters that SBA has lined out. And basically, 

that is how we qualify that small business as an alternative source 

of funding through the SBA. Many times those small businesses 

are not a good candidate for conventional financing because they do 

not have the collateral value or they are depending on future cash 

flows, projected cash flows. We personally do a lot of startups, as 

well as acquisitions for small businesses, as well as some franchise. 

And a lot of times there is not a historical record there. And personally, I was able to give my hair stylist Kim a loan to acquire 

a salon when the owner died. She was a young lady. She had good 

credit, but did not have a lot of collateral. So we were able to help 

her acquire that salon. She hired eight additional stylists, paid her 

SBA loan off early, and that is just one story where the Credit 

Elsewhere Test is a good tool, and we do use it so we can slot that 

customer in the right type of either conventional or SBA loans. 

Chairman KELLY. Yeah, and I guess for the public, the few people who are watching this hearing, is the credit elsewhere means 

you are not competing with other sources. If they can get credit in 

another place, then they have to do that. They cannot use this program. They have to only use this if it is the only resource that they 

can use to get there. Is that correct? 

Ms. BLANKENSHIP. That is correct. 

Chairman KELLY. Okay. Do one of you other three, does anybody want to take a stab before I ask the next question? 

Ms. MCDONALD. From my perspective, we are no different than 

our friends in the banking industry. We look at the loan and we 

see, first of all, can we do it in a conventional manner? And if we 

cannot—and it is usually because they do not have the down payment, they need a longer term, et cetera—but from a credit union’s 

perspective, we follow the same rules as our friends in the banking 

industry. 

Chairman KELLY. And Mr. Ashby, I think you had a comment? 

Mr. ASHBY. We do not specifically look at the Credit Elsewhere 

Test. When we underwrite a loan, we are looking at the collateral 

coverage cash flow and secondary source of repayment. And a lot 

of the conventional financing is homogenized because regulators 

like to know what our loan policies are. And all our loan policies 

are generally the same as you go from bank to bank. So you can 

identify really very quickly which loans need this kind of support 

and help from the SBA on extended terms. 

Chairman KELLY. Thank you very much. 

Mr. Wilkinson, in your testimony, you described the PARRIS, PA-R-R-I-S, review system as a tool in SBA’s oversight tool box. 

SBREP-219A with DISTILLER

11 

What other tools does SBA and the Office of Credit Risk Management utilize to conduct lender oversight? 

Mr. WILKINSON. Sorry about that. A relatively new system that 

they put in place over the last 4 or 5 years, but it is an analytically 

driven program that they used to target what reviews are going to 

happen amongst their lenders. And that is where then they can 

choose what kind of reviews which lenders are going to get. And 

it appears to be working quite well. The one issue that we would 

be concerned about is making sure that the Office of Credit Risk 

Management has sufficient resources to do its job. With the growth 

we have had in the program, we need to make sure that their resources have increased commensurately so that they have the appropriate staff to continue to do the job that they need to do. 

Chairman KELLY. And I yield back myself the time that I have 

not used. And I now recognize our ranking member from North 

Carolina, Ms. Adams, for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chair. And thank you all for your 

testimony. 

Mr. Ashby, in your written testimony you mention positive aspects of the 7(a) program and other SBA programs, including 

SCORE. Do you have any success stories or specific examples of 

how SCORE counseling has benefitted small business clients? And 

what improvements can be made there? 

Mr. ASHBY. Comments were primarily related to feedback that 

we have gotten from customers that have gone through that process, and they think it is very valuable to have someone that has 

basically fought the fight and learned how to navigate through 

their business careers and how to help these people overcome some 

of the obstacles that happen in their business because we go 

through cycles, and some of these retired people have seen many 

business cycles. And so my experience is that we get great feedback. We are not present during those counseling sessions, but we 

do get feedback that it is most important to them to have a mentor. 

Ms. ADAMS. Okay. Let me ask you. You know, I had a listening 

session last week, some people would refer to it as a townhall, up 

in the upper part of my district in Huntersville, and we had a lot 

of veterans to come in to talk to us. Do you deal much with veterans? Have they been interested in the program through your 

bank? 

Mr. ASHBY. We have had—I think we probably made three or 

four loans to veterans last year. There is a special carve-out for veterans on fees for loans amount of a certain dollar amount. So we 

do have interest from veterans. 

Ms. ADAMS. Okay. You also note that the SBA One program 

platform is not fully operational. What enhancements should be 

made to the system? 

Mr. ASHBY. Well, right now, basically, we can only get the 

issuance of the guarantee, and I think it was originally designed 

that you can go soup to nuts. You can do the initial qualification 

and then you can print all the closing documents all on one platform. And so I guess the second half of that platform is not fully 

complete at this time. 

Ms. ADAMS. Okay. To what extent, I mean, as a follow-up, has 

the SBA sought feedback from lenders to improve the system? 

SBREP-219A with DISTILLER

12 

Mr. ASHBY. We get constant feedback from our district director, 

Lynn Douthett. And so we are being called on all the time to talk 

about what types of loans we are seeing. If we need any training, 

they oftentimes request Surrey Bank train some of the new people 

that are coming into the SBA lending arena because we have been 

at it a long time and we are a small bank. And we try to help them 

get the proper resources in-house in order not to run in trouble 

with the SOP and have problems going forward, so—— 

Ms. ADAMS. Okay. Thank you. 

Mr. ASHBY.—we have a good relationship. 

Ms. ADAMS. Great. Thank you. 

Mr. Wilkinson, for a small business to participate in the 7(a) program it must not be able to obtain conventional lending. How does 

a lender determine if a borrower cannot get credit elsewhere? 

Mr. WILKINSON. Okay. The Credit Elsewhere Test is that the 

borrower cannot find financing under reasonable terms and conditions. So a lender will take a look at each small business borrower 

and determine whether it fits into their own conventional credit 

policies. For instance, many of our credit policies say we do not 

lend to new business startups. In the SBA program, year-to-date, 

we are about 36 percent new business startups. So that is sort of 

one of the automatics that fit. As has been mentioned, sometimes 

it is collateral coverage. Sometimes it is cash flow coverage. There 

are some statistical numbers that lenders look at, and perhaps if 

those numbers do not reach a benchmark that is sufficient for conventional financing, then they would be candidates for the SBA 

program. 

Ms. ADAMS. Okay. Given that it is the lender’s best interest to 

make the determination that the borrower cannot obtain credit 

elsewhere so that they can make the loan, add to its assets or 

make money off of the loan, to what extent does a potential conflict 

of interest exist there? 

Mr. WILKINSON. I guess the first thing is banks are in the 

business of lending money, and with every loan that they make 

they hope to generate a profit from those. I think what you are referring to is the ability to sell loans into a secondary market where 

the banks can recoup the funds that they have lent plus generate 

a profit on those. Those loans that are sold are typically sold by 

lenders who have liquidity issues. Lenders who do not have liquidity issues typically hold their loans. That is why only about 40 percent of the loans in the 7(a) market are sold into the secondary 

market. Most of the loans, a majority of the loans are actually held 

and not sold. 

Ms. ADAMS. Okay. All right. I am out of time. Mr. Chair, I yield 

back. Thank you. 

Chairman KELLY. I thank the ranking member. 

I do want to recognize both our chairman, Chairman Chabot, 

from the great State of Ohio, and our Ranking Member Vela ́zquez 

from New York. And I thank both of them for honoring me by 

being here today. 

And now I recognize the gentleman from Kansas, Dr. Marshall. 

Mr. MARSHALL. Mr. Chairman, I am so excited to be here. It 

is a breath of fresh air to talk about a government-private partnerSBREP-219A with DISTILLER

13 

ship that is working. I am just here to celebrate. I needed a breath 

of fresh air. 

Thank you so much for the people that have made the effort. We 

need to keep accentuating the positive, and I appreciate some of 

you brought solutions. Ms. Blankenship talked about a 2-year funding commitment. What a novel idea to give you all certainty. I hope 

that the chairman and our staff take notes of these possible solutions. And Ms. McDonald, you talked about best practices. Give me 

the best practices and we will do it. What a novel idea. Timeliness. 

These people that need the money, they need to get in the game 

now because 6 months from now may be too late for this business 

opportunity. 

You talked about software. Good luck with that. I have been 

fighting that one wherever I go. 

I do not know about you all, but my community woke up November the 9th, and it was a breath of fresh air. My entrepreneurs 

have been drowning in regulation, and all of a sudden they started 

popping up, coming out of nowhere. 

And Ms. Blankenship, have you seen an increased number of entrepreneurs out there since November the 9th? What is going on 

in the business world in Grapevine, Texas? 

Ms. BLANKENSHIP. Well, I am proud to say we have seen an 

uptick and a demand for entrepreneurs. And really, I think, personally what I have seen coming through our loan committee, 

whether it be SBA or conventional lending, is there is just a renewed energy out there. During the crisis years, we saw a lot of 

our small businesses really pull back on expansion and investment 

and resources into their business because they did not know what 

the economy was going to do. And I think there is a new confidence. We are seeing people that would not have taken a gamble 

on starting a new business or just trying to acquire another business. We have seen quite an increase in that. And I think that accounts for the increase in the program. The program has been critical to us for 30 years. Some banks, you know, we see players come 

in and out of the market but we have been in it for 30 years. And 

I think the reason it works for us and some of the other people that 

stay in it is because you have to make a commitment and have 

your own resources in-house and just use the program as it was intended. And it is hugely successful. 

Mr. MARSHALL. Well, thanks. And we do understand commitments to your community to do these types of projects. 

Ms. McDonald, talk about agribusiness. I am just curious. Do you 

see much SBA loans like this for agribusiness, agriculture? Is that 

a big part of your market or not so much? 

Ms. MCDONALD. It is not a big part of our market. 

Mr. MARSHALL. That is too bad. 

Mr. Ashby, I am not sure how rural you are. Do you see much 

agri-economics going on with yours? 

Mr. ASHBY. We have seen a lot of activity in the poultry industry and we have participated, I think, probably maybe, I think, two 

or three loans last year. There is competition in that field with 

FSA. 

Mr. MARSHALL. Okay. 

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14 

Mr. ASHBY. USDA makes those loans, also. But that was a large 

growth industry in North Carolina last year. 

Mr. MARSHALL. Ms. McDonald, let me come back to you. You 

talked about your bagel loan, and that is just a great, great story. 

Walk me through this business model just a little bit. And I am 

sure you are not supposed to give me too many specifics. Mr. Ashby 

talked about a $200,000 average loan, but a business like the bagel 

industry, that is not a $400,000—I mean, are these $40,000 and 

$60,000, $80,000, 90,000 loans? Give me just kind of a feel for what 

your more typical loan looks like. 

Ms. MCDONALD. At Randolph Brooks, our average SBA loan is 

$90,000. So these are not high-dollar loans. 

Mr. MARSHALL. Yeah. Let’s kind of walk through the terms 

and differences between this and a more bank-traditional loan. I 

mean, I had some experience going through these. You know, first 

of all, the differences are does the SBA still guarantee 85 percent 

of the loan? Or about how much does it do now? 

Ms. MCDONALD. It depends on the amount. So if it is less than 

$150,000, then it is 85 percent; if it is more than $150,000, it is 

75. 

Mr. MARSHALL. Okay. And, you know, typically, you would 

walk into a bank. These are kind of high-risk loans. If they are a 

well-qualified person, a bank might be asking 20, 30 percent down. 

How much down are these type of loans going to—how much capital? 

Ms. MCDONALD. So at Randolph Brooks, our conventional loans 

are 20 percent down. With the SBA guarantee, it can be 10 percent 

down. And because we can extend the term, it makes the payment 

much more palatable. 

Mr. MARSHALL. Exactly. So you addressed the term. What 

about interest rates? You know, as best as applies and apples, is 

it about the same as a conventional loan? Is it more? Is it less? 

Ms. MCDONALD. I mean, it is a little bit more. You are taking 

on the risk. 

Mr. MARSHALL. Meaning a little bit more, like half a point, 50 

basis points, or what? 

Ms. MCDONALD. I could not answer that. 

Mr. WILKINSON. The interest rates are statutorily set. There is 

a maximum rate of prime plus 2-3/4. The average interest rate 

today is running at prime plus 2. 

Mr. MARSHALL. Thanks. That solved it. Thank you. 

Chairman KELLY. The gentleman’s time is expired. 

I now recognize the ranking member from New York, Ms. 

Vela ́zquez. 

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

Ms. Blankenship, thank you for being here today, and it is really 

nice to see you again. 

I understand that SBA has been slow to fulfill their mandate to 

maximize the effectiveness of SBA LINC and SBA One. It is critical 

that SBA is using the best technological solutions to do so. How important is it to community banks and other SBA lenders that SBA 

continues to streamline their processes using technology to maximize the usefulness of SBA LINC and SBA One? 

SBREP-219A with DISTILLER

15 

Ms. BLANKENSHIP. Well, I think especially of our community 

bank, timeliness is everything. So any advances and streamlining 

procedures that the SBA can finish up this SBA One and the 

LINC—it is not fully operational right now. We are using a thirdparty software and we are basically running those parallel. And we 

do get continued and regular communication from SBA encouraging us to use SBA One. And in talking to our lenders on the SBA 

side, they are very encouraged by the final product should it become fully functional. But right now it is not fully functional, but 

it looks like it will greatly increase our efficiencies. It will increase 

our turn times, and I think someone mentioned that funding is 

critical many times, especially in a small business startup or acquisition. 

Ms. VELA ́ ZQUEZ. Funding is critical, and in terms of funding 

for SBA? 

Ms. BLANKENSHIP. Well, the funding for SBA is critical, but 

our ability to fund—— 

Ms. VELA ́ ZQUEZ. Sure. 

Ms. BLANKENSHIP.—in a timely manner is very critical as 

well. 

Ms. VELA ́ ZQUEZ. Yes, I agree. 

Mr. Wilkinson, we have heard from many lenders about SBA’s 

SOPs under lender guidelines. What is your view of those SOPs, 

and can they be improved? 

Mr. WILKINSON. Well, just as a point of clarification, there are 

regulations that SBA has issued over the years, and they are fairly 

short. And then in addition to those regulations they have put out 

what they call Standard Operation Procedure Manuals, and those 

are not so short. They are pretty thick. And those are the ones that 

we have to pay very, very close attention to. Sometimes those SOPs 

get changed rather quickly, and sometimes without notice. We see 

it from emails coming in from some of our members. But for the 

most part, SBA does try to work with us and find ways to streamline the program. 

If we go back to just fiscal year 2012, this was a $15 billion program. I tip my hat to the last couple or three folks that have been 

in charge of the Office of Capital Access at SBA. They were all 

former bankers. They understood our issues when we brought them 

to them, and really worked to try to streamline it. 

So from a $15 billion program in 2012—and we have a request 

out for next year to make it a $30 billion program. So while the 

SOPs can be somewhat onerous and we pull our hair out sometimes in trying to figure out what some of the changes are, the fact 

is that things have gotten a lot better and we are looking at an industry that has doubled since 2012. 

Ms. VELA ́ ZQUEZ. Glad to hear that. 

Mr. Wilkinson, I know that several members today have raised 

the Credit Elsewhere Test, but I want to ask you about whether 

or not you believe that there are instances where some lenders are 

not adhering to this test. 

Mr. WILKINSON. Could there be some lenders who are originating loans that could be done conventionally? I could not say unequivocally the answer is no. I mean, there is most likely somebody 

who has made a loan today where a borrower could get a convenSBREP-219A with DISTILLER

16 

tional product. But that is where the role of lender oversight at 

SBA comes into play. 

As Ms. Blankenship described, every loan file has to explain why 

they cannot make that loan on a conventional basis, and they have 

to cover the things that cause that reason, be it lack of collateral 

or lack of cash flow that meets their conventional standards. Perhaps it is because the borrower needs the 25-year maturity rather 

than the much shorter maturity that banks like to do on conventional financing. That documentation needs to be in the file. And 

if it is not there and that lender goes to ask for the guarantee to 

be honored, chances are the answer is going to be no to the guarantee request. 

Ms. VELA ́ ZQUEZ. Okay. Thank you, Mr. Chairman. I yield back. 

Chairman KELLY. I thank the gentlelady. 

I now recognize the great gentleman from Nebraska, Mr. Bacon. 

Mr. BACON. Thank you for being here. I appreciate your time 

and traveling here. I am grateful to you. 

Most of my questions were already asked. I just want to express 

my concern with your comments, Mr. Ashby, about the banks that 

are closing, our community banks and the consolidations, a lot of 

it a result of Dodd-Frank. I think that is an underreported story, 

and we here should be concerned about it in Congress. I mean, for 

small communities, it is a bad trend and I think we have got to 

fix that. So I would have a commitment to help you out with that. 

On that note with Dodd-Frank, when I talk to our folks in the 

Second District of Nebraska, I hear from the banks it is very hard 

to give small loans anymore separate from the SBA because of the 

Dodd-Frank regulations. I think that forces a lot of our small businesses to go to the SBA, which is a government program and policy 

causing a problem and then using another government solution to 

help fix it. Is this a correct observation? Do I have that right? For 

anybody who would like to answer. 

Mr. WILKINSON. Our program has grown dramatically over the 

last few years and I do not know that we could singularly say that 

it was because of Dodd-Frank. I think there are a lot of things. The 

economy is improving. There are more entrepreneurs looking to 

borrow today. Our loan volume, our growth is up year-to-date about 

7 to 8 percent over last year. Are there provisions of Dodd-Frank 

that are pushing lenders to shrink their conventional credit box 

and expand their SBA box? I would say the answer is probably yes. 

To what extent I could not quantify that. 

Mr. BACON. Okay. 

Mr. ASHBY. At Surrey Bank, we do not think there is as large 

a business opportunity in lending to individuals for personal needs 

as there are in small business lending because these regulations 

are very complex and the risk of running afoul of those regulations 

is significant. 

Mr. BACON. One more question. I think each of you touch on it 

just a little bit, but I would love to have clarity together. If you 

could say or tell us one thing you would like us to help improve 

with the SBA and the 7(a) process what would it be? 

Ms. BLANKENSHIP. I would like to see us be able to refinance 

an existing SBA loan on our books. We probably lose three to four 

loans a year because the rules will not allow us to take out another 

SBREP-219A with DISTILLER

17 

SBA loan, and it becomes particularly cumbersome when it has 

been sold into the secondary market. But as a result, we end up 

losing not only the customer but the deposits, so the deposits go out 

of our community bank. That is deposit dollars that could have 

been leveraged into other loans and expansion into the community. 

And that is really a key obstacle for us right now. So we would like 

to see that refinance rule revisited. 

Mr. BACON. Thank you. Great input. 

Ms. McDonald? 

Ms. MCDONALD. As I mentioned earlier, it would be great to 

have any unwritten rules or best practices published so that we do 

not find out after the fact. It would save us a lot of time. It would 

save the SBA a lot of time. 

Mr. BACON. I think everybody would like that. 

Ms. MCDONALD. Yes. 

Mr. BACON. Any job they are in. 

Mr. Wilkinson? 

Mr. WILKINSON. Well, mine is more at a programmatic level. 

Over the last few years we have bumped into our authorization cap 

repeatedly, and we had proposed—last year it was included in—the 

budget request for the current year has been improved by OMB 

and actually was introduced in the Senate as potential language to 

give the administrator of the SBA the opportunity to increase our 

authorized cap with notice to the Appropriations Committees by a 

certain percentage, 10, 15 percent. So, for instance, this year, she 

could raise it another $3 billion, or up to $3 billion with notification 

to the Appropriations Committee so long as the program is operating at a zero credit subsidy. 

So no appropriations are needed. It would give us that flexibility 

so we are not worrying about did we guess exactly right on the 

amount of loan volume we are going to see 18 months down the 

road, because that is a hard task to do. And with that kind of flexibility in the authorization cap, it would make my life a lot easier. 

Mr. BACON. Thank you. And with about the 40 seconds remaining, Mr. Ashby? 

Mr. ASHBY. We are a portfolio lender. We are a small bank and 

so I am kind of a small bank advocate. But I think one of the 

things that changed this past year was the inability for banks to 

write an SBA loan if it would get over their loans to one borrower 

limitation. And in a lot of these small communities that may have 

$100 million in assets and say $8 million in capital, that does not 

give you a very large loan limit that you can make to some of these 

customers in your market that may actually need that loan. So I 

think for portfolio lenders it would be great if there could be a 

carve-out for certain sized banks. 

Mr. BACON. Okay. Thank you very much. I appreciate your recommendations, and I yield back. 

Chairman KELLY. If it is okay with the panel, I think we are 

going to do another round of questions. Ms. Adams and I have both 

agreed. Is that okay with you guys? And so I will recognize myself 

for 5 minutes. 

My first question is, and we kind of talked around this, but is 

the Credit Elsewhere Test, is it strong enough? And I would just 

like to hear your comments on that. 

SBREP-219A with DISTILLER

18 

Mr. Wilkinson, I guess we will start with you. 

Mr. WILKINSON. Well, I think it is. Clearly, it is raising a lot 

of questions here on the Hill as to whether it is or not. But I think 

from the lender’s side we understand that we have to document in 

the file why that borrower cannot get conventional financing. And 

could we put some other language and statute to make that even 

more clear? That is a possibility and we would be happy to help 

draft some language with that, but it is pretty clear in our books. 

We treat what SBA means by credit elsewhere and the things that 

are detailed out in the SOP on how you document that. 

Chairman KELLY. So you feel like it is strong enough and it is 

clear enough that you understand it and it is the right test right 

now, is that correct? 

Mr. WILKINSON. I understand it, and I think our members understand it. 

Chairman KELLY. Ms. Blankenship? 

Ms. BLANKENSHIP. I think it works for us right now. If you 

look back at our historical volumes, they did not increase or decrease because of this test. And remember, when you are a small 

community bank, you have a fiduciary responsibility to your customer. I mean, we go to church and schools. Our kids go to school 

together. We cannot take advantage of our customer. So it is our 

job to put that customer in the right finance tool to get them their 

credit availability. Our reputation and integrity is riding on this as 

well. 

Chairman KELLY. Mr. Ashby, do you agree? 

Mr. ASHBY. I agree. When you look at our percentage of loans 

that we have with a SBA guarantee that are business-related purposes, it is 19 percent. And so when you just look at the broad category of business opportunities in our area that is not as vibrant 

as others, that is a very believable percentage. 

Chairman KELLY. And Ms. McDonald? 

Ms. MCDONALD. I think everybody has said it really well. We 

have a fiduciary duty to do the right thing. Everybody here agrees 

with that. We have to be able to note in the loan file or document 

the reasons why we went with an SBA loan, if we were ever audited, we can confidently give the information. 

Chairman KELLY. Thank you. And I still start with you again, 

Ms. McDonald, since I left you the last, my second question is does 

the SBA have the correct tools in place to provide oversight? 

Ms. MCDONALD. I think so. We have a very good relationship 

with the SBA. We are constantly talking to them about ways to improve the process. I would say yes. 

Chairman KELLY. Mr. Ashby? 

Mr. ASHBY. Well, SBA has had explosive growth over the last 

few years. You know, I think they are doing a good job. Mr. 

Wilkinson spoke to the PARRIS SCORE. And I do not know if 

those are confidential reports sent out quarterly to the banks that 

are participating in the programs, but they cover a lot of important 

things: your performance, your asset management and regulatory 

compliance risk management, and any special items and risk factors that the SBA sees out there. So I think it is well done. 

Chairman KELLY. And either one of you two are welcome to 

comment. 

SBREP-219A with DISTILLER

19 

Ms. BLANKENSHIP. Well, just as a preferred lender, you know, 

we have to have integrity in our portfolio and meet certain standards and not go over loss ratios. So I think that the oversight is 

working for us now. With the growth in the program you may need 

to enhance the resources at SBA, but for players like us, I think 

we are not feeling lack of oversight. 

Mr. WILKINSON. I think it is a critical part of our business. We 

have a conference call every other week with the Office of Credit 

Risk Management to talk about issues that are out there. We stay 

very focused on oversight. Do they have enough tools and resources? We would like to see them. You know, they had approved 

prior to the hiring freeze six full-time equivalents to come on to be 

the lead auditors. Right now they hire contractors to do those. 

Hopefully, when the hiring freeze is lifted, SBA can hire their own 

staff that is dedicated specifically for doing those reviews. 

We hear from our members that a lot of times they are training 

the consultants on what they ought to be examining that lender 

for, which does not seem to work well at all. So we are hopeful that 

they will be able to get that done. 

We know that the Office of Credit Risk Management is supposed 

to get a certain allocation of resources every year. We would like 

to make sure that the Office of Credit Risk Management is actually 

getting those resources to make sure that they do have the tools 

necessary to stay on top of our growth. 

Chairman KELLY. And I yield back. And now I recognize Ms. 

Adams. 

Ms. ADAMS. Thank you, Mr. Chairman. 

Ms. McDonald, credit unions are a vital part of our Nation’s lending to small businesses and share the same mission, people helping 

people. How can Congress make it easier for credit unions to participate in SBA loans, SBA programs? 

Ms. MCDONALD. Well, I think we have to look at raising the 

member business cap. At Randolph Brooks, we are 6-1/2 percent 

loaned out, so we are not near the cap, but there are a lot of small 

credit unions out there who cannot get into SBA lending because 

as soon as they put in the resources and spend the money and 

spend the time, they get a couple of loans and then they would 

have to shut down their program. 

Ms. ADAMS. Okay. Encouraging more credit unions to participate in SBA programs is critical to serving many businesses in underserved markets. So what impact will increased credit union participation mean to small firms? 

Ms. MCDONALD. Well, it gives people the opportunity—it gives 

credit unions the opportunity to serve their members. I mean, that 

is why Randolph Brooks got into member business lending. Our 

members were asking for this type of loan. And so the more players 

that are out there able to offer these loans, the more you are going 

to have them in the communities that we serve. 

Ms. ADAMS. Let me ask. Do you all recruit members? You say 

your members are asking. I am just curious. 

Ms. MCDONALD. So we have membership, and we serve them 

for their personal loans, their auto loans, their mortgage loans, and 

some of those same members, because they trust us, have come to 

SBREP-219A with DISTILLER

20 

us and say, you know, we would like to have our business needs 

served by you. 

Ms. ADAMS. Okay. Do you do any special outreach or it is kind 

of word of mouth? 

Ms. MCDONALD. Not particularly for business loans. We do outreach for members in general and then they come to us for their 

business needs. 

Ms. ADAMS. Okay. Thank you. 

Ms. Blankenship, in your written testimony, you note the increase in authorization for the 7(a) program that was required in 

July 2015. Could you please elaborate on the importance of stable 

funding and the proposal for a 2-year funding commitment? 

Ms. BLANKENSHIP. Our loans go a loan committee and we approve those loans in, let’s just say it is 30 or 60 days in advance 

of closing the SBA loan. So at any given time we have approved 

loans that have not closed. And as Mr. Wilkinson said, sometimes 

those loans fall out. For whatever reason, they end up not closing. 

But we have this listing of loans that our loan committee has approved and we have told the customer was approved, but then in 

order to get it fully funded, we have to get the authorization from 

SBA. And so you are always fighting. We are trying to project, too, 

into the future, how much funding will be available based on the 

total market demand. And it is continually and annually a challenge that is I think particularly a challenge for smaller community 

banks and other SBA participant lenders. And if we could go to a 

2-year funding, that would give us—the regulators like to see us 

plan and do our risk assessments annually, and it would just help 

us with our funds management, our liquidity, and our funding 

needs. 

Ms. ADAMS. Okay. Thank you very much. 

Mr. Wilkinson, what efforts have the National Association of 

Government Guaranteed Lenders made to expand the universe of 

small business lending to traditionally underserved markets? 

Mr. WILKINSON. Thank you for that question. We have been 

working diligently with the SBA on what we call our smart business toolkit. It is a program that we put together to help small 

businesses understand how to get credit ready, and we have paid 

for the underwriting of that course and have given it to SBA. We 

have had it translated into Spanish. We have been working with 

the Urban League to get that program out into their membership 

as well. We have had veteran outreach programs. We take lending 

to underserved markets very seriously and I think it is showing in 

that the numbers across the board are up in many of the underserved areas. 

Ms. ADAMS. Okay, great. Thank you very much, Mr. Chair. I 

yield back. My time is up. 

Chairman KELLY. I thank the ranking member and gentlelady 

lady from North Carolina again. Thank you for today. 

Thank you, witnesses, for being here today and sharing your 

thoughts and views. I believe it is important to hear directly from 

lenders participating in the program. Your role is extremely important to our hardworking small businesses that are striving every 

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tricts all across this great Nation. It is vital that the 7(a) Loan Program operate in an efficient manner and on behalf of all our small 

businesses and the American taxpayer. We will use this conversation from today as we continue to review and examine SBA’s loan 

programs. 

I ask unanimous consent that the members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

This hearing is adjourned. 

[Whereupon, at 12:04 a.m., the Subcommittee was adjourned.] 

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Mr. Chairman, Ranking Member Alma Adams, and members of 

the Committee—my name is Tony Wilkinson and I am President 

and Chief Executive Officer of the National Association of Government Guaranteed Lenders (NAGGL), a national trade association 

of approximately 800 banks, credit unions, and non-depository 

lenders who participate in the Small Business Administration’s 

7(a) loan guarantee program. 

The American entrepreneurial spirit is stronger than ever. Unfortunately, there is a very real gap in conventional bank lending 

in this country and even the most qualified business owners often 

struggle to secure financing that meets their business needs. A 

small business seeking capital is often offered loans with terms of 

90-days to 3 years when they really need much longer term financing to thrive. The needs of this country’s small businesses have always been a depository mismatch for banks that simply cannot, or 

may be reluctant to, tie up their capital in long-term loans for borrowers, especially in the wake of the Recession. 

At the heart of the SBA’s success is the 7(a) loan program, the 

agency’s largest public-private partnership with close to 2,000 active participating private-sector financial institutions. These lenders make private-sector loans to small business borrowers who are 

creditworthy and healthy, but that fall through the very wide and 

well-known lending gap that American small businesses face. Instead of 90-day to 3-year term loans, the 7(a) loan program loan 

has an average term of 16 years—in other words, the kind of longterm financing that small businesses need to grow and thrive, but 

that generally cannot be found in the conventional market. 

In Fiscal Year 2016, financial institutions large and small pro- vided a little over $22.9 billion in loans to about 64,000 small businesses nationwide through the 7(a) loan program. Unlike other federal programs that pass the cost on to the taxpayer, the 7(a) loan 

program is completely self-funded by the fees collected from lenders 

and borrowers. In fact, the 7(a) loan program has returned more 

than $1.55 billion—that’s with a ‘‘b’’—to the Treasury since Fiscal 

Year 2010. In other words, the 7(a) loan program is currently a 

revenue stream for the federal government. 

Numbers don’t lie. About 500,000 jobs are estimated to be created or retained annually thanks to the 7(a) loan program. In addition, there are other benefits that are often hard to measure, like 

increased tax revenue governments, and community growth driven 

by small business expansion in small towns across the country. 

SBA 7(a) lending is a rare program where the federal agency has 

figured out how to get out of its own way and leverage private-sector expertise: lenders know how to make loans. SBA does not pick 

‘‘winners and losers’’ because SBA does not make the loans and its 

7(a) loan program is open to any eligible, creditworthy small business borrower. The 7(a) program does not supplant the lending 

market; it supplements it. SBA conditionally guarantees a percentage of the loan, leaving a healthy level of risk on the lenders as 

incentive to serve as prudent stewards of the program. 

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antee, which means that if a lender fails to fully follow 7(a) program requirements and meet its responsibilities, the SBA can—and 

does—reduce the amount of the guarantee payment to lenders. In 

the most egregious cases of imprudent lending, the SBA completely 

denies its liability under the guarantee. Therefore, the very nature 

of the guarantee relationship serves to assure that lenders comply 

with the various SBA regulations while engaging in quality lending. The guarantee program is a sharing of risk and not a complete 

transfer of risk. Beyond responsibilities to the SBA and the taxpayer, as responsible stewards of the program, lenders have an ongoing responsibility to their federal and state regulators, their internal regulatory oversight groups, and even their shareholders to 

ensure that safe and sound lending practices are maintained. In 

part, this ‘skin in the game’ is what makes the private sector such 

ideal partners in the 7(a) loan program. 

NAGGL is pleased to testify in front of the Subcommittee on Investigations, Oversight, and Regulations because we recognize the 

benefit of quality lender oversight and strongly support the continuing implementation of SBA’s oversight program. Since the introduction of federal credit reform, our member institutions have 

witnessed the impact that portfolio performance has on subsidy 

rates and program fees. And, just as important as maintaining 

healthy portfolio performance, proper lender oversight is needed to 

protect the main purpose of the 7(a) loan program—its public policy 

mission to serve those small business borrowers in the community 

who cannot otherwise receive credit elsewhere on reasonable terms 

and conditions. An appropriate oversight approach must also include consideration of how well the public policy goals of the program are being met. In other words, effective oversight ensures 

that Congressional intent is met. 

As Members of the House Small Business Committee, and of the 

Congress as a whole, the maintenance of the SBA programs and 

the responsibility to oversee the agency starts and stops with you. 

As the 7(a) lending industry, we strongly join you in calling on both 

SBA lending partners and the SBA itself to continue their efforts 

to maintain the integrity of the program. Our joint goal is for the 

7(a) loan program to stand the test of time in order to serve many 

more thousands of small businesses across the country. And, 

NAGGL members fully understand that it is in their individual 

and collective best interests that SBA continue to engage in a sustained, effective lender oversight program to meet that goal. 

History shows that the lending community is aware of the need 

to work with the SBA to police itself. For example, it was the 7(a) 

industry that raised concerns about the SBA’s implementation and 

management of the now discontinued LowDoc Program soon after 

it was introduced. Why? There were no written policies for quite 

some time after the LowDoc pilot program was implemented. Similarly, in the 1990s, it was NAGGL that raised concerns to SBA and 

Congress about the practices of the industry’s then largest lender. 

Also, in 2007, I testified before the Senate Small Business Committee to advocate for continued onsite reviews of 7(a) lenders, insisting that offsite reviews alone would not be enough to capture 

potentially risky behavior. I could go on, but the evidence is clear: 

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lenders and the industry do care about the integrity of the 7(a) 

loan program. 

At the same time, it is also important that the lender oversight 

pendulum does not swing too far in the opposite direction resulting 

in lenders and borrowers finding the program unattractive, or resulting in duplication of existing oversight activities from other regulatory agencies (as well as a duplication of the costs already associated with those activities). It is an established fact that the bank 

and credit union industries already have substantial lender oversight from the Office of the Comptroller of the Currency (OCC), the 

Federal Deposit Insurance Corporation (FDIC), the National Credit 

Union Administration (NCUA), the Federal Reserve Board (FRB), 

and various state banking regulators. NAGGL has always believed 

that SBA should be required to demonstrate that it is adding value 

to current federal and state oversight efforts, not merely duplicating existing efforts. 

So, what is a current snapshot of SBA oversight? The SBA Office 

of Credit Risk Management (OCRM) is working overtime at smart, 

effective oversight of a fast-growing program. 

One notable improvement is OCRM’s coordination with other federal bank regulators. In 2007, when testifying in the Senate, I advocated for SBA to partner with the federal and state banking regulators on procedures and lenders of interest to ensure that the 

safety and soundness testing of SBA portfolios was being conducted 

in a way that was consistent with the requirements imposed on 

participating lending partners by their regulators. I said then: 

‘‘We recognize that an inter-regulatory agency partnership 

will require the commitment and cooperation of several agencies; however, we believe that this type of arrangement is necessary to provide the most cost effective and meaningful determination of risk. We would hope that the SBA is willing to 

pursue this avenue prior to arbitrarily requiring that participating lenders bear the cost of additional regulatory examination.’’ 

In the final months of 2016, nearly ten years after that testimony, SBA entered a Memorandum of Understanding (MOU) with 

the FDIC to coordinate information sharing on mutual ‘lenders of 

interest’. NAGGL continues to encourage SBA to negotiate similar 

MOUs with the OCC and the Federal Reserve Board. This kind of 

coordination reduces duplication of federal efforts and is critical to 

an SBA oversight process capable of keeping up with lending program growth. 

It is important to note that just a decade ago, the SBA’s oversight efforts only applied to the largest lenders, even though its 

own statistics showed lenders with portfolios under $1 million still 

pose a significant risk to the 7(a) loan program. And it was only 

recently, in December 2014, that the SBA created and implemented 

the PARRiS review system, a risk-basked review protocol that oversees all 7(a) lenders and takes into account qualitative and quantitative performance data. PARRiS stands for ‘‘Portfolio Performance,’’ ‘‘Asset Management,’’ ‘‘Regulatory Compliance,’’ ‘‘Risk Management,’’ and ‘‘Special Items.’’ The PARRiS methodology is meant 

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to better identify a lender’s specific risk areas, assess the level of 

risk a lender poses to SBA, and to make recommendations for corrective action. Lenders are scored ‘‘1’’ through ‘‘5’’ as part of a datadriven lender-profile assessment. Lenders are also subject to multiple levels of scrutiny and reviews, from analytical and virtual to 

full onsite reviews. 

By most regulatory practice standards, having been implemented 

just two years ago, the PARRiS system is in its infancy. We encourage you, as authorizers, to allow the PARRiS system to continuing 

to develop ever greater sophistication and to support SBA’s ongoing 

improvement efforts. For instance, this past January and after 

nearly two years of advocacy on the issue, NAGGL successfully 

shepherded through a policy change in PARRiS that establishes a 

lender mission rating in the methodology used to risk rate lenders. 

Prior to this change, PARRiS’ lender risk rating did not account for 

traditionally lower performance of loans to underserved markets, 

yet lenders were simultaneously strongly encouraged to focus on 

underserved markets. Now, with this policy change to PARRiS a 

reality, lenders are given ‘‘credit’’ if they meet certain benchmarks 

in lending to an underserved market (small loans, loans to rural 

communities, minority-, women-, and veteran-owned businesses, 

startups and export businesses)—in other words, the oversight review process will no longer be at odds with the public policy mission of SBA lending. 

But these are only pieces of an effective lender oversight puzzle. 

Authorizers, appropriators, and the SBA must commit to an open 

flow of communication regarding what is needed to get the job 

done. For example, does OCRM have adequate resources to conduct 

the full range of their oversight activities? Is there enough OCRM 

staff? These questions are especially relevant as we see continued 

increased demand for the SBA programs from small business borrowers. 

Since Fiscal Year (FY) 2014, the authorization cap has increased 

by 51% (Note: while the program operates at zero subsidy, it relies 

on an authorization cap set by the Committees on Appropriations 

in close conjunction when the authorizers every FY). The net dollars in loans that were disbursed from participating banks to small 

business borrowers, the amount of lending increased by about 28%. 

This growth is a result of a confluence of factors, but most pertinent to this conversation is that as a gap financing program lending where borrowers cannot find capital conventionally, we should 

be growing at a time when conventional lending to small businesses plummeted post-Recession and has yet to reach pre-Recession levels. The very fact that volume increased at a time when 

conventional lending receded from the market clearly demonstrates 

that the 7(a) loan program is indeed doing its job as a gap financing program. 

No one could predict how many small business borrowers would 

turn to the 7(a) loan program in the wake of the Recession, nor 

how many lenders would see the SBA as an avenue for being able 

to help small business borrowers that they were otherwise turning 

away. While the gap in access to capital has always existed for 

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small business borrowers, the climate post-Recession exacerbated 

this gap. 

With the leadership and action of the House Small Business 

Committee, the Senate Small Business Committee, the House and 

Senate Committee on Appropriations, and House and Senate Leadership, the 7(a) program has continued to serve small business borrowers despite the fact that borrower demand reached the program’s authorization cap prior to the end of the fiscal year in both 

FY 2014 and FY 2015. In both of those fiscal years, the House and 

Senate were able to pass language that allowed for the program to 

be reinstated and avoid a mid-fiscal year shutdown. Allow me to 

take a moment to thank you all for your continued support of the 

program. 

7(a) volume is a sign of great success for the program. This period of growth is also the perfect time to ensure oversight is run 

appropriately as our potential balance sheet has more than doubled 

in size over approximately two-and-a-half years. As a trade association, NAGGL believes it is perfectly reasonable to ask questions 

about whether the oversight capabilities of SBA have grown commensurate with the increased volume of the lending program. 

NAGGL and SBA lenders are incredibly proud of who we serve 

and the role we play in each of your individual districts. Over the 

past several years, lending to nearly every underserved market— 

from veterans, rural communities, urban areas, women, Hispanics, 

and African Americans, to name a few—has increased. While we 

can always do more to improve access to capital to these markets, 

we are confident that the 7(a) lending industry is fulfilling the intent of Congress to serve the country’s small businesses. Put simply, the issues that 7(a) loans solve are the issues that every Main 

Street across the country struggle with, and which every legislator, 

whether Republican or Democrat, wants to desperately find an answer to over the next four years—jobs, community rejuvenation, 

and opportunity. 

Chairman Kelly and Ranking Member Adams—I would be 

pleased to answer any questions. 

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Testimony of 

Edward C. Ashby, III 

On behalf of the 

American Bankers Association 

before the 

Subcommittee on Investigations, Oversight and Regulations 

of the 

Committee on Small Business 

United States House of Representatives 

March 9, 2017 

Chairman Kelly, Ranking Member Adams, and members of the 

Subcommittee, I am Ted Ashby, President and CEO of Surrey 

Bank & Trust, Surrey Bank is a community bank headquartered 

in Mt. Airy, North Carolina with $278 million in total assets. I appreciate the opportunity to present the views of the American 

Bankers Association (ABA) on the state of the Small Business Administration’s (SBA) 7(a) Loan Program and the importance of this 

program to my community and banks like mine, The ABA is the 

voice of the nation’s $16 trillion banking industry, which is composed of small, mid-size, regional and large banks that together 

employ more than 2 million people, safeguard $12 trillion in deposits and extend more than $9 trillion in loans. 

Our bank was chartered in 1996 with a focus on business lending. At my bank, as is true of my banker colleagues around the 

country, we are intensely focused on building and maintaining 

long-term relationships with our customers. We view our customers 

not as numbers but as individuals and business owners. The success of Surrey Bank is inextricably linked to the success of the communities we serve. They are, after all, our friends and neighbors. 

Small businesses are an engine of growth and job creation for the 

U.S. economy. In order for small businesses to grow, they require 

safe and reliable funding. Community banks in particularly focus 

intensely on small business lending. According to the FDIC, community banks increased small loans to businesses (defined as less 

than $1 million) at more than twice the rate of non-community 

banks in 2016 and account for 43 percent of all small loans to businesses. 

The SBA programs are an important part of business lending for 

many banks. It helps fill a critical gap, particularly for early stage 

businesses that need access to longer-term loans. The guarantee 

helps reduce the risk and capital required for banks and facilitates 

loans that might never have been made without this important 

level of support. 

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In 1999, Surrey Bank began using SBA and other government 

sponsored credit enhancement programs as a tool in its strategy of 

helping local companies meet their credit needs. As a portfolio 

lender, this allowed our bank to attract a wider range of customers 

and improve the financial condition of the bank. SBA granted Surrey Bank its Preferred Lender Status in 2003 after determining the 

bank had sufficient experience and resources to properly administer the program. Since that time, the bank has actively participated in the SBA 7(a) Loan Program and has earned ‘‘Community 

Bank of the Year’’ award in North Carolina twelve of the past fourteen years. 

Participation in the SBA 7(a) Loan Program is an integral part 

of our business model as a commercial bank. The bank has $212 

million in outstanding loans, of which about 67% (or $142 million) 

is for business related purposes. Currently, the bank has $34.7 million in SBA loans of which $26.5 million is guaranteed by SBA. 

Thus, a total of 18.7% of our business related loans and 12.5% of 

all loans have SBA guaranties. 

The success of the SBA 7(a) Loan Program for my community 

and Surrey Bank is evident by the 174 active loans with an average loan size is $199,366. As an example, the bank extended credit 

to a pre-cast concrete company that opened in 2007. Economic activity was far below expectations and the borrower experienced difficulty generating working capital to invest in new work orders. 

The bank used SBA’s Cap Lines Contracts Loan Program to fund 

the individual orders. This company now generates sufficient cash 

flow to funds its operations without SBA or bank assistance. Also, 

the bank extended credit to a start-up operation engaged in traffic 

and safety control for highway and bridge construction. The company started in 2004 with four employees and two trucks. Since inception, the bank has extended them 23 SBA loans over 12 years 

to fund expansion. The company now has annual revenue over 

$12,000,000, a fleet of over one-hundred vehicles and 90 employees. 

Our success is replicated over and over across communities in this 

country. This is why ABA supports the Small Business Committee’s effort to build on the positive aspects of the Program and consider improvements that would benefit the business community. 

In my comments below, I will outline some of the positive aspects 

of the program and provide some suggestions for improvements to 

make the program even more effective. 

Positive Aspects of SBA 7(a) Loan Program 

Let me begin by complimenting the staff in the SBA’s North 

Carolina District Office. Our bank has received a high level of support and encouragement from District Director Lynn Douthette and 

her staff. The professionalism and dedication to help small businesses and banks is part of the equation of success of the SBA programs. In addition, the complementary local programs, particularly 

the free counseling through SCORE (Service Organization of Retired Executives) has proven very helpful in mentoring business clients. 

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Here are some key features of the SBA Program that are very 

positive: 

> The Express Loan Program is very effective. It reduces the 

level of paperwork, utilizes the internal loan policies of the 

originating bank and reduces the cost of the transaction to the 

small business customer. 

> Loans to start-up businesses require a business plan as 

part of the approval process. This requirement has proven very 

useful in helping the owner to consider various facets of the 

business that are essential to achieve profitability and grow 

the company. 

> The program allows the use of projections in start-up businesses to underwrite cash flow to support the credit request. 

Under conventional financing, banks would normally require 

an abundance of collateral or a guarantor with a high level of 

liquidity to grant credit. 

> The credit score generated by the SBA software to determine eligibility is very helpful in providing fast response times 

to prospective borrowers. 

> The program provides for extended loan amortizations on 

secured loans at a higher percentage of the useful life of the 

collateral. This improves the borrower’s cash flow. 

> The advance rates on secured loans are higher than general loan policy. This reduces the amount of working capital a 

small business needs to invest into the fixed assets of the business. 

> The program provides for a long-term commitment without 

the time, expense and uncertainty associated with of balloon 

payments typically used in conventional financing. 

> Loans can be underwritten based on cash flow without relying on collateral coverage or book equity in the business as 

a condition for credit. 

> The use of ‘‘Delegated Authority’’ for Preferred Lenders allows the bank to modify loans. This provides the borrower an 

opportunity to work through short term cash flow issues and 

or reschedule debt payments without being forced into liquidation. 

> Veterans enjoy reduced fees on loans between $150,000 

and $700,000. 

Opportunities for Improving the SBA 7(a) Loan Program 

Below are some examples of how the program can be improved, 

primarily relating to the servicing of SBA loans: 

> SBA loans cannot be consolidated or refinanced by the 

same lender. In instances where the borrower is experiencing 

rapid growth, the bank is required to make multiple loans on 

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icing and administration of the loans is difficult for the borrower and the bank. 

> SBA guidelines no longer allow a bank to obtain a guaranty to avoid regulatory loans-to-one-borrower limitations. This 

is a disadvantage to small banks that are portfolio lenders attempting to meet the credit needs of customers in their market. A carve-out for banks that are under $1 billion in assets 

engaged in portfolio lending should be considered. 

> The use of subcontractors in the liquidation process at 

times resulted in confusion over the correct version of the 

Standard Operating Procedures (SOP) used to determine eligibility for repurchase. This caused delays in the liquidation 

process. We suggest sub-contractors receive additional training 

on identifying the appropriate SOP in affect when the loan was 

originated. 

> A loan is liquidated based on the type of loan program. 

When a borrower has multiple loans, liquidation can involve 

multiple service centers in different states. This creates a duplication of work for the bank. More importantly, borrowers 

have a difficult time making an ‘‘Offer in Compromise’’ until all 

claims are processed. 

> The SBA One platform is not fully operational, which results in duplication of work to produce the forms required to 

properly close the loan. 

Conclusion 

The health of the banking industry and the economic strength of 

the nation’s communities are closely interwoven. We strongly believe that our communities cannot reach their full potential without 

the local presence of a bank—a bank that understands the financial and credit needs of its citizens, businesses, and government. 

The SBA 7(a) Loan Program is a success and should be vigorously 

supported in the future. It has encouraged economic growth in our 

community and allowed Surrey Bank to meet the credit needs of 

many small businesses. The positives of the program are many and 

the areas of improvement are primarily related to servicing aspects 

of the program. 

Before closing, I want to express the concern shared by many of 

my banking colleagues that the community banking model we 

know today will collapse under the massive weight of rules and 

regulations. Lack of earning potential, regulatory fatigue, lack of 

access to capital, limited resources to compete, inability to enhance 

shareholder value and return on investment, all push community 

banks to sell. The Dodd-Frank Act has driven all of these in the 

wrong direction and is leading to consolidations with very real consequences for local communities. 

Last year 251 banks disappeared; since Dodd-Frank was enacted, 

nearly 2,000 banks have merged or closed their doors. For community banks, it goes beyond just our parochial interests. We are very 

much a part of our community. It is why every bank in this country 

volunteers time and resources to make their communities better. If 

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the relentless pressures on our small banks are not relieved, the 

loss will be felt far beyond the impact on any bank and its employees. It will mean something significant has been lost in the community once served by that bank. This is why it is imperative that the 

Administration and Congress take steps to ensure and enhance the 

banking industry’s capacity to serve their customers, thereby facilitating job creation and economic growth. 

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