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74–279 2012

OVERSIGHT OF THE SMALL BUSINESS 

ADMINISTRATION’S FINANCING PROGRAMS 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

OCTOBER 26, 2011 

Small Business Committee Document Number 112–041 

Available via the GPO Website: www.fdsys.gov 


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(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

JANICE HAHN, California 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Staff Director 

BARRY PINELES, General Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

Page 

Opening Statements: 

Graves, Hon. Sam ............................................................................................. 1 

Vela ́zquez, Hon. Nydia ..................................................................................... 2 

WITNESSES 

The Honorable Karen Mills, Administrator, United States Small Business 

Administration, Washington, DC ........................................................................ 3 

Sally B. Robertson, President, Business Finance Group, Fairfax, VA ................ 27 

K. Rodger Davis, Managing Partner, NorthCreek Mezzanine, Cincinnati, OH . 29 

Gary Grinnell, President & CEO, Corning Federal Credit Union, Corning, 

NY ......................................................................................................................... 31 

Ms. Lynetta Tipton Steed, Executive Vice President Business & Community 

Banking Division, Regions Financial Corporation, Birmingham, AL .............. 25 

APPENDIX 

Prepared Statements: 

The Honorable Karen Mills, Administrator, United States Small Business 

Administration, Washington, DC ................................................................ 41 

Sally B. Robertson, President, Business Finance Group, Fairfax, VA ......... 45 

K. Rodger Davis, Managing Partner, NorthCreek Mezzanine, Cincinnati, 

OH .................................................................................................................. 52 

Gary Grinnell, President & CEO, Corning Federal Credit Union, Corning, 

NY .................................................................................................................. 57 

Ms. Lynetta Tipton Steed, Executive Vice President Business & Community Banking Division, Regions Financial Corporation, Birmingham, 

AL ................................................................................................................... 71 

Questions for the Record: 

Chairman Graves Questions for the Record ................................................... 83 

Rep. Keating Questions for the Record ........................................................... 86 

Answers for the Record: 

Administrator Mills Response to Chairman Graves Questions for the 

Record ............................................................................................................ 88 

Administrator Mills Response to Rep. Keating Questions for the Record ... 93 


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OVERSIGHT OF THE SMALL BUSINESS 

ADMINISTRATION’S FINANCING PROGRAMS 

WEDNESDAY, OCTOBER 26, 2011 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 

2360, Rayburn House Office Building. Hon. Sam Graves [chairman 

of the Committee] presiding. 

Present: Representatives Graves, Chabot, Coffman, Mulvaney, 

Tipton, West, Walsh, Barletta, Vela ́zquez, Schrader, Critz, Chu, 

Cicilline, Richmond, Peters, Owens, and Hahn. 

Chairman GRAVES. Good afternoon. We will call the hearing to 

order today. 

The most important thing this Committee can do is create an environment in which entrepreneurship is fostered, thereby producing 

jobs vital to the economic recovery. There are many aspects in creating this environment and in today’s hearing we are going to focus 

on one of those, and that is access to capital. 

The Committee has heard on multiple occasions from small businesses that they cannot get funds needed to operate and expand 

their businesses. At the same time, banks have testified before the 

Committee saying that they have the funds available to lend. The 

Small Business Administration oversees a number of programs 

working in conjunction with the private sector partners to bridge 

this apparent gap between the need and availability of capital. SBA 

statistics show that volume in its financing programs has increased. These efforts have been supplemented by promises from 

banks to raise lending to small businesses. It remains an open 

question whether these efforts are sufficient to provide the necessary funds for small businesses to expand and create jobs. The 

SBA programs operate with loan guaranties issued by the federal 

government. 

Congress has determined that the risk to the taxpayers are outweighed by the benefits providing the needed capital to small businesses. Irrespective of that determination, this Committee has a responsibility to ensure that the desire to get money into the hands 

of small businesses does not come at the expense of exercising due 

diligence when making a loan, especially when taxpayers are on 

the hook for the government’s bad decisions. Therefore, the Committee needs to know that the SBA and its partners are complying 

with the requirements of the Small Business Act and not issuing 

loans with document deficiencies as the inspector general has recently found. Ultimately, the Committee needs to understand 


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whether the programs currently constituted are enabling small 

businesses to create jobs; if not, the Committee will need to examine legislative changes to promote access to capital without unduly 

placing the taxpayer at risk. 

And with that I yield to Ranking Member Vela ́zquez for her 

opening statement. 

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

In the last year, our nation’s economy has experienced steady 

private sector job creation. However, it has not been enough to 

have a sizeable impact on the unemployment rate which remains 

stubbornly high at 9.1 percent. The reality is that we will still have 

a long road ahead of us with millions of Americans who are seeking 

work that cannot find it. Front and center to any solution to this 

dilemma are small businesses. In every previous downturn it has 

been small, innovative firms that have created the cutting-edge 

products and services to lead us forward. In fact, more than half 

of the companies on the 2009 Fortune 500 List were launched during a recession or bear market, along with nearly 50 percent of the 

firms on the 2008 Inc. List of America’s Fastest Growing Companies. 

Whether it is a Silicon Valley startup or a Main Street mom-andpop, it is clear that small businesses are our nation’s job creators. 

In order for entrepreneurs to continue to play this traditional job 

creating role, it is essential that they are able to access capital. 

Doing so provides the fuel for innovation and economic expansion 

across the spectrum of entrepreneurship. It enables unemployed individuals to start their own businesses, help domestically-oriented 

companies to sell their goods in foreign markets, and allows high 

tech firms to reinvest in R&D. 

But small businesses face real challenges in the capital markets. 

While lending conditions and credit standards are easing, companies have still not recovered from the financial crisis and recent recession. This has left many without the assets to borrow against 

and with lower revenues than in years past. As a result, business 

owners now have fewer options to secure affordable financing. 

Lending through the SBA is always critical to fill in this void. Several provisions this Committee crafted in the Recovery Act temporarily boosted SBA-backed lending. Recent guaranties and cutting 

fees on SBA loans spurred demand and was key for the record-setting year the agency experienced with record 7(a) loan volume of 

nearly $20 billion, an increase of more than 50 percent. It is clear 

these policies work. Impressive growth in the SBA state program, 

as well as more moderate growth in the 504 program, confirmed 

important roles that these initiatives play in the capital markets. 

With this growth came other challenges in the portfolio. The average 7(a) loan grew by nearly 40 percent, while there were percentage declines in smaller loans and those to startups. During economic downturns, smaller loans are especially important. As an average it costs nearly 75,000 to launch a new enterprise. With an 

average 7(a) loan size of now $365,000, five times the cost of a 

startup, we must make sure that the agency is not forsaking its 

roots solely to set records. 

During today’s hearing I am hopeful that we will not just tout 

past performances but instead focus on how we can expand access 


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to capital for all businesses, especially those at the earliest stage 

of the business cycle. Startups, particularly those in the highgrowth sectors, remain central to our economic recovery, and it is 

critical that we expand their ability to secure financing. Now is not 

the time to constrain free access to capital and problems like those 

at SBA are critical to creating jobs. Getting financing in the hands 

of would-be entrepreneurs has never been so important and doing 

so is not just critical to reducing unemployment but also to increasing tax revenue and decreasing our nation’s debt. I know the next 

few months are critical in this regard, and I will be focusing on 

making sure small businesses are not dealt a bad hand when the 

Super Committee makes its final recommendation. 

On that note, I would like to thank the witnesses for taking their 

time to be here. I am interested in hearing their thoughts on how 

best to meet the entrepreneurs’ capital needs so they can create the 

jobs that we badly need. 

Thank you, Mr. Chairman. 

Chairman GRAVES. Thank you. 

Our first witness today is The Honorable Karen Mills, who is the 

administrator of the Small Business Administration. 

Ms. Mills has been the SBA administrator since 2009 and is obviously no stranger to this Committee. Prior to joining the Small 

Business Administration, Ms. Mills was an investor in small businesses, so the struggles that businesses have in obtaining capital 

are obviously very familiar to her. Thank you very much for being 

here. We appreciate you coming in. 

STATEMENT OF THE HONORABLE KAREN MILLS, ADMINISTRATOR, UNITED STATES SMALL BUSINESS ADMINISTRATION 

Ms. MILLS. Well, thank you very much, Chairman Graves and 

Ranking Member Vela ́zquez and members of the Committee. 

Thank you for asking me to testify on Access to Capital for Small 

Business. 

For the fiscal year that just closed, the SBA hit an all-time 

record in its 60-year history. We supported over $30 million in 

lending to 60,000 small businesses. We brought back 1,200 lenders, 

mostly community banks and credit unions who had not made an 

SBA loan since 2007. We also had a record year in our Small Business Investment Company program with nearly 2.6 billion in overall financings. This is a zero subsidy program that targets highgrowth small businesses, the main driver of new jobs. 

Today, SBA’s lending volume is back at pre-recession levels. 

However, it is our agency’s continued obligation to identify and fill 

gaps where the market is not working. This is particularly true for 

low dollar loans and loans to businesses in underserved communities. And as I describe this effort I want to be sure that the Committee understands that all of the SBA’s programs and initiatives 

have been implemented in accordance with our authority as provided by this Congress. So first, low dollar loans, under $150,000 have not come back. 

We found three root causes. They have a high cost of processing 

relative to their size so banks often do not want to make them. To 


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answer that, we streamlined and simplified paperwork on these 

loans to incentivize lenders to step up. 

Second, we need more points of access to get small loans to entrepreneurs in underserved markets. That is why we developed 

Community Advantage to let community-based lenders with proven 

track records and historically low default rates make 7(a) loans for 

the first time. 

Third, when many of the large banks withdrew from lending during the recession and the credit crunch in October 2008, small businesses were very hard hit. That is why we have secured $20 billion 

in additional commitments over the next three years from 13 of our 

largest banks; many of them will focus on underserved markets. 

I also want to be sure the Committee fully understands the facts 

about loan performance and our subsidy costs. Loan default rates 

now have begun to fall; they are not rising. And loans made in the 

past three years are actually performing significantly better than 

in the cohorts of 2005, 2006, and 2007. As I have testified before, 

we are also focused on lender oversight and the elimination of 

fraud, waste, and abuse through a three-pronged approach. We 

look at upfront eligibility to make sure the loans are flowing to the 

intended recipients. We continue monitoring and oversight of our 

lending partners. And finally, we focus on enforcement efforts to 

pursue fraud and bad actors. 

My commitment is that we will continue to expand access to capital while protecting taxpayers’ dollars as we embark on another 

critical year in SBA lending. 

Thank you very much. 

[The statement of Ms. Mills follows on page 41.] 

Chairman GRAVES. Thank you, Administrator Mills. 

We will turn to Mr. Coffman for opening questions. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

Administrator Mills, since the SBA-backed loans are only a small 

percentage of overall small business lending, what steps are you 

taking to encourage private small business lending? 

Ms. MILLS. As you heard me say earlier, we have, as you describe, on a good day, a small portion of the market, maybe 10 percent of the market. So the entire market, the conventional market 

for small business lending needs to also come back. We went out 

to our 13 largest lending partners, all the large banks which had 

not come back in force to SBA lending and other lending, and 

asked for increased commitments and promised to work with them 

to make sure they had access to the demand that we see out there. 

They have committed $20 billion of additional capital, incremental 

to what they have done. 

Mr. COFFMAN. Who is ‘‘they’’ again? 

Ms. MILLS. There are 13 banks. 

Mr. COFFMAN. Thirteen banks. 

Ms. MILLS. So we can give you the list. It was public. You know, 

our primary partners, J.P. Morgan Chase, Wells Fargo, U.S. 

Bancorp, PNC, Huntington Bank. And the aggregate amount is $20 

billion incremental in small business lending over the next three 

years. 

Mr. COFFMAN. Thank you. Administrator Mills, do you have any 

analysis to determine what SBA-backed lending would be without 


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the reduced fees and higher guaranty—75 to 85 percent guaranty 

still provides banks a way to mitigate risk. 

Ms. MILLS. Yes, we do have evidence. In a chart which was attached to my testimony you can see what happened. The actual 90 

percent guaranties ended on December 31st last year. We had a big 

spike right before that happened so we had a recovery dip and then 

we came back to a level that was significantly above 2010 as well 

as 2008 levels. So it seems to be working. 

Mr. COFFMAN. Thank you. Thank you, Mr. Chairman. I yield 

back. 

Chairman GRAVES. Ranking Member Vela ́zquez. 

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

Madam Administrator, since startup rates typically rise during 

economic downturn, you might expect to see a rise in lending for 

such entrepreneurs. However, small dollar loans and loans to 

startups declined as a percentage of SBA lending last fiscal year. 

Does this mean that the agency is shifting away from making these 

type of loans and focusing on larger loans to more established, mature companies? 

Ms. MILLS. No. The agency believes, as you do, that there is a 

gap in small dollar loans. And in fact, one of the real reasons for 

the high unemployment right now is that we are down about 

100,000 new business starts. So we have been extremely concerned, 

as I know you have been, about the fact that the market did not 

come back. And that is why we came out with this three-pronged 

approach to promote small loans. 

Ms. VELA ́ ZQUEZ. Okay. So why is it that last year SBA spent nearly $70 million, 84 percent of your 7(a) loan subsidies on 7(a) 

loans of $1 million or more? By contrast, subsidy for loans of 

250,000 or less, for which there is the greater need right now, were 

just 1.9 million? Does it seem fair that so much money goes to benefit fewer than 1 in 10 of all borrowers? 

Ms. MILLS. As I said, we are in complete agreement with your 

analysis of this problem in that there is a gap in small business 

lending. We have continued to focus on that. But the job is not 

nearly done. We have made slight progress over the last year in 

the smaller loan sizes but there is still a very, very large gap. To 

that end—— 

Ms. VELA ́ ZQUEZ. What do you think it will take so that we can 

see more loans going to smaller or startup businesses? Because 

that is where the need is. 

Ms. MILLS. It will take the banks coming back to that area. What 

we have done is try to make it more cost-effective for them to use 

an SBA guarantee for a small loan. We have tried to bring together 

our large lending partners and get them to focus on it. We have 

tried to bring more points of access to all who make small loans, 

like Community Development Financial Institutions, and give them 

access to SBA lending. We will look at every possible program 

within our authority to do that. 

Ms. VELA ́ ZQUEZ. Okay. Okay. Thank you. 

Last week your agency issued final rules to permit the wholesale 

of refinancing of commercial real estate in the 504 Loan program. 

With foreclosures expected to climb this year, how much will this 

new refinancing program contribute to the subsidy rate? 


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Ms. MILLS. Well, this new refinancing program has the authority 

to pay for itself, so it lives separate from the subsidy rate. 

Ms. VELA ́ ZQUEZ. So you do not expect the refinancing initiative 

to contribute to this subsidy rate? 

Ms. MILLS. No. 

Ms. VELA ́ ZQUEZ. No? That is what we heard before regarding the 

regular financing 504 program and you came back and for next 

year you will require nearly $90 million in subsidies. So what 

would you or your agency do if defaults on refinanced 504 loans 

begin to exceed the fees charged to cover those losses? 

Ms. MILLS. This program is authorized to charge additional fees, 

and we will charge the fees necessary to make a zero subsidy. 

Ms. VELA ́ ZQUEZ. I understand but it is the same situation that 

we have with the 504 regular program. And when you continue to 

charge those fees and increase those fees to cover for those losses, 

you could reach a point where you reach the maximum cap allowed 

by the law. So what will you do then? You will have to come back 

here and ask for subsidies to cover for those losses. 

Ms. MILLS. The refinancing program ends a year from now. 

Ms. VELA ́ ZQUEZ. Okay. As you say that a year from now that will 

end, the same situation we find with the stimulus funding for the 

7(a) and 504. It will expire in December. SBA’s loan approvals have 

fallen back to levels not seen since the worst of the credit crunch. 

Why is it that two years after the credit crisis began, SBA cannot 

find a long-term solution to providing meaningful levels of credit to 

small firms? 

Ms. MILLS. Well, the facts, as you have just stated them, I think, 

are not correct. If you look at the chart next to my testimony you 

will see that even in the last three quarters we have rebounded to 

levels that are at 2008 levels. 

Ms. VELA ́ ZQUEZ. Half of all your lending last year occurred in the 

first quarter when the incentives from the stimulus package were 

in place. And that is the only reason lending was up as high as it 

was. So every month since those provisions will expire we have 

seen the lowest number of loans that have been issued or backed 

by the federal government. 

Ms. MILLS. With respect, I believe that those facts are not correct. 

Ms. VELA ́ ZQUEZ. It is not the amount. It is not the amount of 

money lent; it is the amount of loans that have been made. 

Ms. MILLS. The number of loans that we have right now is impacted, as you mentioned before, by the fact that the decline—most 

of the loans are in the small level. In the previous years those have 

not come back. 

Chairman GRAVES. Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. Thank you, Ms. Mills, for 

being here. I appreciate your efforts and everything that you try 

and do to help small businesses in the country. 

Just listening to some of your testimony, I would like to get a 

little bit of clarification. You had mentioned that in order to be able 

to get the banks to start making loans again you had streamlined 

some paperwork. Can you describe a little bit what were the actual 

cost savings to the bank as an incentive in the streamlining of that 

paperwork? 


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Ms. MILLS. I know we have that but I do not have it here. So 

I am happy to get back to you. 

Mr. TIPTON. You know, I think we would like to hear that because we often hear government is simplifying things and that 

rarely is actually the case. And in terms of trying to be able to create some cost savings because that is a real issue. You had also 

mentioned that non-performing loans are dropping. 

Ms. MILLS. Correct. 

Mr. TIPTON. Right now. Is that the result of an improving economy or is that a result that people have simply gone bankrupt and 

they are no longer on the board? 

Ms. MILLS. Our loan portfolio is made up of cohorts that were 

made in 2005, 2006, 2007. 

Mr. TIPTON. Right. 

Ms. MILLS. Many of those, when you look at our delinquency 

rate, failed in the recession and therefore, caused a peak in our default rate about 14 months ago, in August 2008. Now it is improving slowly as those loans have passed through the portfolio. 

Mr. TIPTON. So the stabilization is the businesses basically went 

belly up? 

Ms. MILLS. Well, actually, the new loans are defaulting. They are 

early. But they are defaulting at a much, much lower rate, measured from their month of inception, than the loans from those previous cohorts. So we anticipate that this improvement will continue. We also know that credit scores on our current portfolio of 

loans made in recent years are much stronger. 

Mr. TIPTON. Okay. You had mentioned that there is a commit- ment of $20 billion in commitments from the larger banks. How 

much of that has been loaned out? 

Ms. MILLS. We made the announcement on this three or four 

weeks ago, so probably not very much yet, but it is coming. 

Mr. TIPTON. Okay. Great. You know, looking through your written testimony you seem to give a tip of the hat to the president in 

regards to the $467 billion stimulus and indicated that it was paid 

for. My concern and a lot of our constituents’ concerns that are 

small businesses is it is being paid for on the backs of businesses 

that are currently struggling in terms of increased tax rates. Could 

you speak to that? 

Ms. MILLS. We are talking about the American Jobs Act. 

Mr. TIPTON. Right. 

Ms. MILLS. The American Jobs Act has received very strong support from the small business community because it includes a payroll tax cut which they are very eager to get because it means cash 

in their pocket right away. As I understand it, no specific pay-for 

yet has been decided because the bill is still in the hands of Congress. But definitely small businesses are looking for that cash 

from the payroll tax cut in their pocket. 

Mr. TIPTON. Do you think small businesses are going to be concerned about increased tax rates? I have a letter here from a gentleman named Jim Bartimus, a small construction company in 

Pueblo, Colorado. Been a successful business, small business, and 

because of a lack of access to capital he paid down his line of credit 

to zero. Went back to the banks trying to get that line of credit 

reupped. He had actually purchased a crusher—if you are familiar 


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with construction to be able to grind up rocks to put on the roads— 

trying to grow his business and to be able to create jobs. But because of regulatory compliance the banks, they wanted to loan the 

money but could not loan the money. He had to line up his equipment, sell it off, call in 24 core employees, tell them that they no 

longer had a job. 

But under the president’s calculations right now, and there is 

some debate and we both need to probably pass on the message 

that the plan is not paid for, he would have been labeled rich a 

couple of years ago. Do you think it is counterintuitive and, in fact, 

counterproductive to be raising taxes on small businesses at this 

time? 

Ms. MILLS. Well, first of all, if you have another small business 

like this or if he is still available, please tell your small business 

owner in that situation to get on SBA.gov and come into our district office because that is exactly the situation where we can help. 

And one of the tasks before me is to make sure that small businesses are aware that when the bank cannot lend because of regulatory issues, our guaranty can often, very often, make the difference. 

Mr. TIPTON. So that is a lot of clean up that we could do in addition to streamlining paperwork, eliminating those regulatory requirements on banks so that they can loan. Would you not? 

Ms. MILLS. We have sat with banks and I sit on a continuous 

basis with the regulators to make sure that the guidance they have 

given on small business lending at the top is making its way all 

the way down to their regional regulators so that we have a consistent set of regulations at the banks so that they can open their 

doors to small businesses and get some of this money out into their 

hands. 

Mr. TIPTON. Well, I hope that will happen. I see my time is expired. Thank you, Mr. Chairman. Thank you. 

Chairman GRAVES. Mrs. Chu. 

Ms. CHU. Ms. Mills, I am the ranking chair of the Contracting 

Subcommittee and last week Congress Member Mulvaney and I 

were able to have a hearing in Los Angeles, my area, and it was 

about SBA and how it does or does not serve the businesses of our 

area. And at that hearing Jesse Torres, the CEO of Pan American 

Bank, testified about his small business lending program. He is 

doing the job we want. He is providing underserved communities 

with small business lending options. It is not easy but they are successful. But they do not operate a 7(a) loan program and he said 

that the reason they do not is because you need a team of experts 

to ensure that they meet all of the requirements to ensure that 

they get the SBA guaranty. The teams are expensive and not costeffective for the bank and that if SBA finds out that some requirement is not met then they will withdraw the guaranty and the 

bank is liable for the entire loan. 

Why would teams of experts be necessary to operate an SBA 7(a) 

loan? And what can we do to ease the process for smaller banks 

like Pan American Bank? 

Ms. MILLS. Well, first, Mr. Torres and Pan American Bank are 

now on our list to come and do some training and some outreach 

so that we can get him into the program. 


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The problem that you describe, we have put forward what we call 

a 10-tab program. When a bank makes a loan we have a 10-tab 

system so that if they put the right paperwork in every single tab, 

when they come forward at some point to have us honor the guaranty if there is an issue, we will know that every piece of that paperwork is in place. So when we come out and we speak to Mr. 

Torres, we are going to teach him the 10-tab business and hopefully alleviate the need for the extra cost that he is concerned 

about and assure him that we will be able to make a proper payment on that guaranty because all of his paperwork will be in 

place. We do have paperwork. We do have rules. We cannot make 

payments on guaranties if those things are not in place. 

Ms. CHU. So is this a program that you have in place, a technical 

assistance for the smaller banks that need this kind of training? 

Ms. MILLS. Yes, it is. It is run through our district offices. That 

is one of their primary focuses. 

Ms. CHU. How often do you withdraw the guaranty so that a 

bank might be held liable? 

Ms. MILLS. We honor the guaranty in 95 percent of cases. 

Ms. CHU. Hmm. Okay. On another topic, something else that we 

learned from our field hearing in Los Angeles is that microloans 

are incredibly important. In particular, the PRIME Program seems 

to really work, especially now that big banks are now likely to deal 

in millions of dollars. These micro entrepreneurs create jobs for 

themselves and contribute to our economy and they might start 

with one or two persons but before you know it they could be a 

major company. Many of these entrepreneurs only need 50,000 or 

a couple of hundred thousand to get started but I understand in 

SBA’s 2012 budget you say that the PRIME Program is duplicative 

of the Small Business Microloan Program. But I believe the PRIME 

Program is different in that the PRIME Program gets entrepreneurs ready for a loan, whereas the Microloan Technical Assistance Program trains already existing programs for growth. 

And just to give an example of a PRIME Program success story, 

two sisters, one a recent college graduate, invested in a business 

with fashion design and manufacturing. They had 135,000 but they 

needed to borrow 35,000 to help cover their working capital. But 

they came to PRIME because the regular banks would not help 

them. And where would businesses like this turn to if PRIME is 

eliminated? 

Ms. MILLS. Well, first, you are correct. There are thousands of 

stories out there where PRIME has helped many, many small businesses with technical assistance. The issue we face is that everybody has to tighten their belt in these difficult budget times. So we 

looked for programs where we could execute those activities 

through other programs we had or through partners. And it turns 

out that our microloan intermediaries and our Community Development Financial Institutions provide terrific technical assistance. 

We felt that our value-added was to provide them with the ability 

to use our 7(a) program, get access to capital, and that we would 

use public-private partnerships to work together with them to 

make sure that the technical assistance through our entire network 

of Small Business Development Centers, microlenders, Women’s 

Business Centers, was still robust and growing. 


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Ms. CHU. Well, thank you. I would like to get that list of these 

partners that you think would help get these micro entrepreneurs 

ready. 

Ms. MILLS. Yes, we can do that. 

Ms. CHU. And I yield back. 

Chairman GRAVES. Mr. Barletta. 

Mr. BARLETTA. Thank you, Mr. Chairman. 

Ms. Mills, I represent Pennsylvania’s 11th Congressional District 

and Northeastern Pennsylvania. My district has one of the highest 

unemployment rates in the state of Pennsylvania. 

On September 8th, after Hurricane Irene and Tropical Storm 

Lee, we have experienced the worst flooding in the history of our 

area. Many people, many businesses, as you can see, have lost everything. Many people did not have flood insurance as they were 

told they were not in a flood plain. As I traveled around talking 

to the residents there, many businesses were saying they are not 

going to open again. They just do not know what they are going 

to do. Many of the folks there, a lot of them senior citizens, again, 

asking what will the federal government do to help us? And what 

I had to tell them was that they could qualify for a SBA loan. If 

you are an individual we will give a loan at 2.7 percent interest. 

If you are a business and you cannot get credit anywhere else, we 

will give you a loan at 4 percent. But if you could get credit somewhere else we will give you a loan at 6 percent interest. 

I have got to tell you I was almost embarrassed to tell the people 

back home that, especially after, you know, whenever a disaster 

strikes somewhere else in the world, America, being the most generous country that we are, are always the first to help people. In 

fact, in the last two years we gave Pakistan $215 million for flood 

disaster relief. No interest. No payback. I do not know about you, 

but I think we should help America and Americans first. What do 

you say that I tell the people back home in Northeastern Pennsylvania why the interest rate would be 6 percent? 

Ms. MILLS. Well, I am familiar with your district, and it was extraordinarily hard hit by both Irene and Tropical Storm Lee. For 

the benefit of those who are new on the Committee, we run a ready 

reserve of 2,000 disaster operators who actually within 24–36 

hours are on the ground in these areas, assessing damage, speaking with people, co-locating with FEMA. We have a two-page application. We do homeowners. We do businesses that are damaged. 

And we do economic injury. So make sure that they know even if 

they did not have physical damage but because the area was cut 

off, businesses suffered some damage or because it is still distressed, they can get 30-year long, 4 percent economic injury loans. 

Mr. BARLETTA. But—— 

Ms. MILLS. The issue about credit elsewhere—— 

Mr. BARLETTA [continuing]. But they could get credit elsewhere. 

Ms. MILLS. The reason for the credit elsewhere test is that we 

are responsible for the good use of taxpayer money, and the reason 

for an uptick is that if there is a private sector mechanism, a bank, 

where they can get credit elsewhere, then the market should provide it. If they cannot, then that is our job. And that is where we 

step in and try to give the most benefit—— 


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Mr. BARLETTA. Well, I guess the problem I am having is we gave Pakistan $215 million for flood disaster relief. So should I tell the 

people in Northeastern Pennsylvania they would have been better 

off if they were in Pakistan than if they were right here at home? 

I do not know. I think at some point we should take care of America and Americans first and American businesses. We cannot afford 

to lose any more jobs. 

I introduced a bill. This has changed my life, this flood. I mean, 

I walked with these people. I cried with them and watched them 

as they put their life’s possessions out on a curb to be taken away. 

I introduced a bill that would change the way America handles disasters by introducing a bill that would give a 1 percent loan for 30 

years, enough to cover our administrative costs. If we could help 

other people I think we could help Americans at a time of disaster 

first. 

Thank you. I yield back. 

Ms. VELA ́ ZQUEZ. Mr. Barletta, will you yield? 

Mr. BARLETTA. Sure. I will. 

Ms. VELA ́ ZQUEZ. I really welcome your position. In fact, after 

Katrina I tried to reduce the interest rate and even provide a 

bridge loan, zero interest rate. And it did not happen. I did not 

have the support from your side so maybe this time around we 

could work together. 

Mr. BARLETTA. Do you want to get on the bill with me? 

Ms. VELA ́ ZQUEZ. Okay. 

Mr. BARLETTA. I think we could change the way we handle disasters. Thank you. 

Chairman GRAVES. Mr. Schrader. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

I am pleased to hear that some people in the majority party are 

beginning to rethink having to require to pay for our FEMA reimbursements upfront when there is a disaster and real people are 

hurting. And I assume Mr. Barletta was obviously one of those that 

was not willing to hold up the FEMA bill and have it paid for at 

the time. So I appreciate his help there. 

Mr. BARLETTA. Will you yield just for a moment? 

Mr. SCHRADER. No. I have got a limited amount of time. 

I want to talk about I think the successes that this small business administrator has had over the last few years. I mean, I 

have—when I came here actually Administrator Mills came in at 

the same time and I was a little bit aghast at the status of the 

Small Business Administration. It had been hacked at and cut back 

dramatically by the previous administrations, not just the one before but over the years and it was in total disarray. We had a lot 

of testimony about waste, fraud, and abuse that we have had several subsequent sessions with the administrator and it looks like 

things have gotten, frankly, a lot better. I mean, there is a new 

sheriff in town, and I appreciate that, Madam Administrator. 

And I think there is some misinformation here. I mean, people 

are talking about going, you know, they have not been here, I 

guess, but there is talk about what the role of the SBA is. And I 

assume that you are not trying to supplant private enterprise; you 

are trying to work with private enterprise. If for some reasons 

banks, credit unions, mortgage lenders cannot step in, that is 


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where you step in. And so there is going to be some defaults. There 

are going to be some defaults. 

But I think I need to hear clarity. You mentioned it but it seems 

to me that a lot of the subsidy rates that we have endured, you 

know, where we are paying back the Treasury for ‘‘bad loans,’’ 

where under the previous administration’s watch, and actually our 

rate of default since you have taken over, is down. Am I incorrect 

there? 

Ms. MILLS. Well, thank you. 

On your point about the current rates, have turned the corner on 

our default rates. They peaked in August 2010 and now have been 

reducing each month. Our current default rates overall are actually 

quite low. Our default rates tend to be under 5 percent. Our loss 

rates actually tend to be much lower. They are about two points 

higher than the normal Federal Reserve credit because we are giving credit where you cannot get credit elsewhere. 

Mr. SCHRADER. I appreciate that, too. I mean, that is really the 

bottom line. You hit the nail on the head. We have got to get small 

businesses back in the business of hiring and growing the economy 

and growing America. And so you take a teeny bit of a risk and 

I am amazed that the default rates are where they are. 

I also remember, and some members on the Committee are new, 

that one of our big angst when you took over was, well, the process 

is too bureaucratic. Trying to get a loan is impossible. The applications—we asked again and again and again, can you not streamline 

this application process? Can you make it simpler so that people 

can actually get in there and get the loans they need? We also were 

worried about the valley of death, you know, where a lot of small 

businesses, you get a little start up and then you try and get to 

the next level and all of a sudden you cannot get that credit. And 

you have developed some pilot programs. There is some controversy 

about that. I appreciate that. But I assume they are in response 

to our direct requests. Am I not correct on that? 

Ms. MILLS. That is correct. So if we look at the Small Business 

Investment Company Program, I do want to thank our team and 

note that not only did they have a record year, they took the processing turnaround time for licensing new funds down from over 15 

months to 51⁄2 months. 

Mr. SCHRADER. That was a big deal. 

Ms. MILLS. And they are bringing in new funds. They are bringing some of the best funds, and they are putting more money into 

those funds and those funds are putting more money into small 

businesses. We do have some gaps, so we have orchestrated two 

other sets of funds under the SBIC authority. SBIC authority was 

not being fully utilized. It is a zero subsidy program. It pays for 

itself and therefore, we want to make sure we put as much money 

through it as the authorization has. So we have a new Impact 

Fund, which is designated to go to areas hard hit. The first one 

was in Michigan. Then we have a new Early Stage Equity Fund, 

which will be launched this year. 

Mr. SCHRADER. Well, I appreciate your efforts there. 

Just a last comment in the remaining seconds. It does not have 

a lot to do with you but I cannot tell everyone out there how disappointed I am in the Treasury Department and the way they are 


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not run as efficiently as you and that Small Business Lending 

Fund having cratered horribly. When small businesses needed access to capital at the critical time and the regulators were beating 

up on the banks for, you know, having too much of this type of 

loan, this was a great opportunity to free up capital. In my state, 

you know, not a single bank got a loan. And a ton of them applied. 

And while I am sure some were probably in tougher shape than 

they let on, not all of them. So I am very, very disappointed in the 

Treasury. I would like to have a hearing with a Treasury official 

sitting right where Administrator Mills is, Mr. Chairman, at some 

point in time if that is not out of order. 

And I yield back. 

Chairman GRAVES. Mr. Walsh. 

Mr. WALSH. Thank you, Mr. Chairman. Welcome. And Ms. Mills, 

thanks for coming in today. 

My colleague, Mr. Schrader, mentioned that it is the purpose of 

SBA to help small businesses access capital when they cannot do 

that in the private marketplace. What is SBA’s mission, in 20 seconds? Twenty-four seconds? 

Ms. MILLS. There’s the access to capital area. We also have disaster operations. We help small businesses—win $100 billion in 

federal contracts. That is a win-win situation. And we have a network of counselors, mentors, advisors, that are as equally as important as the capital. 

Under access to capital, where the market is functioning, where 

a small business can get a loan from the market, why should taxpayers subsidize that activity because the market is handling it? 

But there are many, many small businesses out there that do not 

have access and opportunity. That is where we have been able to 

step into the market as you just saw in this credit crisis and provide that access and opportunity. 

Mr. WALSH. I actually chair the Access to Capital Subcommittee, 

and we held a hearing a couple months ago and brought in heads 

of community and small banks and asked them pretty directly why 

they were not lending to small businesses, knowing full well this 

is where the bulk of small business gets their capital. And their answer was fairly clear and equally direct—our hands are tied. Government regulations have made it darn near impossible for us to 

lend to small business. I am curious, have you heard the same sort 

of thing? 

Ms. MILLS. Well, as I said earlier, we work very closely with the 

regulators on guidance to small business. Out in the field we hear 

the same thing you have, which is that the guidance that has come 

down from Washington has been interpreted more tightly at the regional levels. When we have had these conversations we have gotten very strong assurance that the regulators will work with us to 

make sure that the guidance that they think is proper is the guidance that is being affected at the community bank level and in the 

regional level. We want to make sure the pendulum is in the right 

place and it has not swung back. 

Mr. WALSH. And take that pendulum, do you feel that it has 

swung too far? I can tell you that I have probably spoken to the 

heads of 20 or 30 community banks in my district in the last six 

months and to a man and a woman they all say it has the last couVerDate Mar 15 2010 07:59 Jun 14, 2012 Jkt 074279 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HR\OC\A279.XXX A279

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ple of years. They have seen a noticeable uptick. Are you sensing 

any of that? 

Ms. MILLS. Well, that is a matter for the regulators, but our role 

was to bring to their attention that we were hearing concerns, and 

to make sure that they took their guidance all the way down. Our 

job is actually to make sure that we provide the product that can 

take some of that risk out of the system and allow banks the opportunity to make some loans they want to make but for various reasons cannot fulfill the total risk profile on their books right now. 

Mr. WALSH. But you have heard that concern at that level? 

Ms. MILLS. We have communicated. Every week I am somewhere 

different in this country and every week I have a roundtable with 

bankers and small businesses owners. So I have a pretty good 

sense that in the middle of the summer everybody—small business 

owners, bankers, everybody—had a moment of pause and we did go 

to the regulators and have conversations to make sure that everybody stays on the same page, and that access to capital is, within 

the proper constraints, available to small businesses as much as 

possible. 

Mr. WALSH. Well, if you are out there as you say, and I believe 

that you are, I am convinced then that you have heard the same 

thing most of us have heard when you speak to small and community banks, that they are suffocating right now. Their hands are 

tied. 

Ms. VELA ́ ZQUEZ. Will the gentleman yield? 

Mr. WALSH. Yes. Many of them allude specifically to Dodd-Frank. 

Yes, I would be happy to yield. 

Ms. VELA ́ ZQUEZ. Dodd-Frank will not apply to those community 

banks whose holdings, whose assets are less than $10 billion. And 

those are the community banks that are in our districts. I am a 

member of Financial Services and I work on Dodd-Frank. 

Mr. WALSH. And I will close with this, and thank you, I guess 

they are not convinced of that. Thank you. Thank you, Mr. Chairman. 

Chairman GRAVES. Mr. Critz. 

Mr. CRITZ. Thank you, Mr. Chairman. Thank you, Administrator 

Mills for being here. 

Going back to what Ranking Member Vela ́zquez was talking 

about, the spike in lending that you had at the end of the first 

quarter of FY11 and then as December 31, 2010 hit, the precipitous 

drop in lending—I think the figure she used was half of your lending took place in that first three months for the entire fiscal year 

and some of the information I have been given is that SBA used 

to come to the Congress so that you get an appropriation to cover— 

to waive the upfront borrower fees on the 7(a) program. But you 

did not do it this time. And I have been told that you had $500 

million of Jobs Act money that you might have been able to use to 

alleviate some of that. And I am just curious, as our economy was 

going the way it was, why you chose not to ask for that appropriation at that point or why you did not use the $500 million in Jobs 

Act money. 

Ms. MILLS. I assure you we have used every penny of Jobs Act 

money for fee reduction that we possibly had. 


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Mr. CRITZ. Okay. Is there a reason you did not ask for a waiver 

or did not ask us for an appropriation to waive so you could waive 

the upfront borrower fee? 

Ms. MILLS. We did waive all the upfront borrowing fees through 

the end of the Jobs Act period. We used every single penny and we 

are very grateful for it. Thank you. 

Mr. CRITZ. Okay. One quick thing, and this builds on what Mr. 

Walsh was just saying, is I noticed in your statement that you say 

that you brought 1,200 lenders back to SBA lending. And obviously 

some of my community banks must be over that 10 billion in assets 

because they are asking and talking about how some of the regulations that they are having to meet are hindering them lending 

money, or some of the capital requirements that they have to keep 

are hurting in the way they lend money. 

I was listening to you as you were saying you convene 

roundtables and you talk to banks all the time. I would be curious 

to hear what your suggestions are on the way we can be more effective or help you be more effective in getting money out and getting 

these small businesses energized. 

Ms. MILLS. Well, thank you. I want to make sure that you are 

properly connected to all of our resources on the ground. So we 

have district offices, we have Small Business Development Centers, 

and we have a flow of small businesses that we match with banks. 

To the extent that you come in contact with banks and with small 

business owners who have concerns, who are struggling, who want 

to make more small business loans, we can help them with our programs. We are in high outreach mode and the best thing to do 

would be to send them to us. 

Mr. CRITZ. I know your administrator in Pittsburgh is Carl 

Knoblock. He is a friend of mine and I can tell you where all the 

SBDCs are in my district as well. So we are pretty well plugged 

in. I was just, you know, my banks are talking about having troubles with lending money. And it is not just SBA money. Actually, 

I have a letter in front of me from one of my banks but it is the 

Treasury Program that Mr. Schrader was mentioning that one of 

the rules to get a Treasury loan is that the company has to certify 

that they are not child sex offenders. And there was a parliamentary trick played last year to defeat this bill and it actually got included, so now they are having trouble lending the money because 

of this provision because the small business owners are a little bit 

insulted that they have to certify—not that they are not rapists, 

not that they are not murders, but that they are not child sex offenders. 

So, I appreciate your efforts. I am not going to belabor the point. 

My office is always available if we can be of any help, and I appreciate the work you are doing. 

Chairman GRAVES. Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. Administrator Mills, 

thank you very much for doing this. 

At the risk of repeating what may have been said, I apologize for 

being a few minutes late. But I want to thank the chairman and 

the ranking member for giving me and Mrs.—Congresswoman Chu 

the opportunity to have a field hearing last week in the San Gabriel Valley where Mrs. Chu is the representative. 


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And instead of asking questions I would like to report back briefly to you on what we heard because it was very educational for me. 

This was an area that is literally driven by small business. It takes 

up an inordinate size of the economy in that part of Southern California. There are very few large, national Fortune 500 companies, 

but a very, very active small business community, entrepreneurs, 

in large part from the immigrant community. 

And here is what we heard. We had small business lenders 

there, small banks, and one of the things they told us was that 

they were doing lots of lending to small business but no small business lending. They were not using any of the programs that were 

available to them. And when we asked them why they said it was 

too hard. And they said that the large banks were doing it. And 

really what the large banks had done is put together teams of professionals who did nothing but small business lending. So the Wells 

Fargo, the Bank of Americas of the world, they would have small 

business units because it was a specialty, and it had to be a specialty because it was so complex. And they did not have the human 

capital or the money available to develop that area of expertise. So 

they asked us to please do whatever we could to simplify the process. 

We also heard that one of the things they focus on is micro lending. They do a lot of micro lending. We heard some great stories 

about loans under $100,000, how successfully they had been used. 

And when I asked them if they knew about the small business 

micro lending program, one of the things they said is they had 

looked at it but that the paperwork for a $50,000 loan was almost 

the same as the paperwork for a million dollar loan. And in terms 

of a return on the time and the investment that they had to make 

into setting up that loan it simply was not worthwhile. So they 

asked us to please take a look at anything, if anything, looking at 

making micro lending somehow streamlined so that they could do 

more of these things. And again, this was—a large majority of the 

loans they were issuing to the businesses in that area were under 

$100 to $150,000. 

We also learned about the difficulties of opening a small business 

development center. That area had lost its SBDC in the recent past 

and there were a couple of organizations that were interested in reopening it only to find it was going to take at least three years to 

go through the paperwork necessary to open a new SBDC. And one 

of the things that we suggested or that Mrs. Chu and I talked 

about is maybe suggesting to you a grandfather process. So if there 

was an organization that was an SBDC that closed, that maybe 

they could be put on a fast track to reopen since they have already 

gone through the process at one point in the past. 

I guess the last thing that we heard was that many of them had 

not heard of many of the programs that you offer. They were not 

aware of the Mentor Prote ́ge ́ Program. Only one of them even had 

ever been to the SBA website. So I do not know what you all are 

doing in terms of outreach to these small community banks. And 

maybe they dismiss it because of their impression that it is too difficult to work with the SBA because of past history. Again, I am 

not laying any blame here; that is not the point of the presentation. 

But that if the opportunity exists to reach out to educate these 


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lenders, because again, the basic message I took away was that 

they are lending to small business and they want to do more but 

they are not using any of the tools that are made available to them 

through the Small Business Administration. 

So again, not a question. A comment back from the field, and I 

appreciate your attention. 

Thank you, Mr. Chairman. I yield back. 

Chairman GRAVES. Absolutely. Mr. Peters. 

Mr. PETERS. Thank you, Mr. Chairman. And Administrator Mills, 

it is great to have you here with us today, and I appreciate all the 

SBA has been doing, particularly in the state of Michigan. You 

mentioned some innovative programs that you have engaged in the 

state, and I thank you. We have been particularly hard hit as a result of what has been happening in the economy, and thankfully 

the auto industry is responding, been adding jobs in our area, but 

we all know that it is not just the auto industry or large industry 

in any particular region that is important, but the small businesses 

that are in the region that need to grow and prosper. And you have 

been a key player in helping us do that in Michigan. So I wanted 

to thank you for that first off. 

And before asking some, a couple specific questions, I also just 

kind of want to get your sense on a statistic that you mentioned 

in your opening comments that ‘‘job creation is down starts by over 

100,000,’’ I believe was the quote that you had. And we, obviously 

on this Committee, are all big believers in small business and understand that small business is the engine of growth for an economy. But we also know that job creation is heavily skewed towards 

startups in order to get that kind of job creation. 

And I just want to kind of get your assessment. You have been 

a very successful businessperson prior to your current position. As 

to what do you think accounts for that? Is it just as a result of lack 

of demand in the economy, a very weak economy we are in? Or are 

there some structural impediments, like financing that we are discussing here today? I mean, how would you weigh those and what 

sort of things should we be thinking of as members of the Small 

Business Committee to address the startup issue in particular? 

Ms. MILLS. Thank you. I have enjoyed working in Michigan with 

all the great small businesses there. We focus on both Main Street 

small business and the kind of high-growth small businesses that 

could be part of the next large public company and employer. We 

are down 100,000 starts, and that is contributing to part of the employment problem. We do know that access to capital for startup 

businesses and for small growth amounts for those businesses is 

constrained. That, as they say, the valley of death has widened. We 

do have some programs, particularly the new one we are going to 

launch, but there is still a need for continued focus on getting more 

access to capital, particularly in underserved communities, particularly in distressed areas, particularly in places which have not traditionally had venture capital, because we know there are small, 

innovative businesses and entrepreneurs waiting to start up in all 

of those areas. 

Mr. PETERS. Now, along those lines, and you mentioned the success that you had in the Recovery Act and as a result of that you 

were able to increase lending considerably which had higher guarVerDate Mar 15 2010 07:59 Jun 14, 2012 Jkt 074279 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HR\OC\A279.XXX A279

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anty rates as well as the waiver of fees. And I know your activity 

was up dramatically. Have you done any analysis as to what is 

more important—waiver of fees or the guaranties? And if given a 

choice as we go forward, how should we weigh that as perhaps a 

program going forward? Because we know the track record of success? 

Ms. MILLS. Well, that is a very good question. We have done 

some analysis. I asked at every focus group for a long period of 

time and usually I would get half of them saying it is the fees and 

the other half saying it was the guaranty. So I think the jury is 

out. 

Mr. PETERS. So we still have to find that out. But certainly, 

the—— 

Ms. MILLS. We think the combination clearly worked. 

Mr. PETERS. Certainly, the combination worked. And I guess in 

thinking of how the jury is out, I do not know who were your focus 

groups. Probably smaller companies in particular get impacted by 

fees perhaps more than anything else. And I am very concerned 

about access for underserved communities. I represent a community that has an unemployment rate well in excess of 20 percent 

and we have a large urban area in the Detroit area, as you know, 

which also suffers. You talked about the program we are bringing 

large banks, and I believe it says it is going to target underserved 

markets in particular. And I would like you just to tell us more 

what does it mean by ‘‘in particular’’ and how do you define ‘‘underserved’’? And how are we going to really monitor what is going on 

with these banks and have some sort of report as to the success 

they are having and hopefully focusing completely in underserved 

areas. But I want to know what it means by ‘‘in particular.’’ What 

is your hope for that program and how will you assess it? 

Ms. MILLS. Well, once again, this is a voluntary program that 

private sector banks came in because we asked them to step up. 

Each bank has a different set of activities and commitments that 

they are interested in pursuing. Many of those banks demonstrated 

that part of that commitment will be around underserved markets. 

We are going to partner with them, connecting them to Community 

Development Financial Institutions, and making sure their CRA 

contributions go as much as possible to help proven programs that 

will get money in the hands of small business. So it will be a wide 

array of programs. 

Mr. PETERS. Great. Well, thank you very much. Thank you for 

your time. I think my time is up. 

Mr. COFFMAN. Mr. Chabot from Ohio. 

Mr. CHABOT. I am going to pass, Mr. Chairman. 

Mr. COFFMAN. Mr. West. Mr. Cicilline, Rhode Island. 

Mr. CICILLINE. Thank you, Mr. Chairman and Ranking Member 

Vela ́zquez. Welcome, Administrator Mills. It is good to have you 

here. 

I always want to begin my comments about the SBA with recognizing the great director in Rhode Island, Mark Hayward and his 

staff who are doing really excellent work and I want you to be 

aware of that. 

As you know, the SBA has $3 billion in authorized leverage annually through the SBIC program. And each year anywhere beVerDate Mar 15 2010 07:59 Jun 14, 2012 Jkt 074279 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\A279.XXX A279

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tween $1 and $2 billion in leverage authority remains untapped. 

And I understand that the Early Stage Innovation Fund and the 

Impact Investment Fund are intended to leverage a portion of that 

existing and yet untapped authority with the hope of really propelling into the hands of startups and entrepreneurs the capital that 

they need to be successful. And I know there are some studies that 

indicate that the unmet need for early stage capital equity financing for small businesses is somewhere in the neighborhood of $60 

billion annually. This is a really important issue in my state, and 

I think all of us are trying to encourage new startups. And those 

typically are small businesses. 

And so there is a particular, you know, just to use as an example, a constituent of mine, along with his partners, is forming a 

company called Axena Technologies, which has developed an antimicrobial material that can be used on medical devices to combat 

healthcare associated infections with huge potential for savings in 

healthcare and improved outcomes in health. And they have been 

working with SBA programs, including SBIC. And I am just wondering if you could explain how the Early Stage Innovation Fund 

and the Impact Investment Fund would help a company like that 

access startups to really get through, as was just described, this 

valley of death, which is really the most challenging time and get 

to that place where they can actually create jobs and grow our 

economy. 

Ms. MILLS. Well, thank you. As you know, I am a person who 

spends quite a bit of time in Rhode Island. My husband’s family 

is all there, so I know that you have fabulous entrepreneurs. 

The SBIC fund had a record year, and it had a record year in 

a number of ways. Number one, it had a record year in the 

financings that went out the door to small businesses. Number two, 

it had a record year, as you see in the charts in the back of my 

testimony, in SBA commitments to the funds. We would like to 

fully utilize that authorization because, as I said earlier, this is a 

zero subsidy program and it directly impacts jobs. 

We have built a great pipeline of credible funds who are applying, and they can come into the regular program or they can apply 

to an Impact Fund, which is really very much similar to the regular program but it is our way of directing potential investors to 

areas that are distressed and are trying to turn around and have 

had a difficult time in this recession. The Early Stage Fund will 

be run slightly differently. It will be a one deadline fiscal 2012 activity. For each of those two programs we have committed a billion 

dollars, $200 million per program, per year, for five years. 

So those will ramp up. We are doing it as expeditiously as possible. Our licensing time has gone down from 15 months to 51⁄2

months, so we are taking our pipeline through faster. But that 

said, we need to get capital into the hands of these terrific private 

partners. They need to then deploy it out to their small companies. 

They have been doing it remarkably quickly. I think you are going 

to hear that in the next testimony, but we are also doing it 

thoughtfully because we want to maintain this program at its positive levels. 

Mr. CICILLINE. Will that be acting as early stage equity funding 

for those two funds? 


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Ms. MILLS. Correct. Our current funds are actually mezzanine 

funds. But within the early stage there will be a deferral mechanism where they can essentially be an earlier stage equity contribution. 

Mr. CICILLINE. Well, I thank you. And I hope that the SBA will 

really focus on both innovative and creative ways to do this kind 

of financing because I think we have a lot of financing tools that 

were designed during a different age of industrial and manufacturing, and we really need to have this nimbleness in government 

to be able to respond to this new economy and have financing 

mechanisms that provide the kind of support that our small businesses, our entrepreneurs. And our early stage capital is one of 

those examples. So I applaud you for that and look forward to its 

results. 

Thank you. I yield back the second that I had. 

Chairman GRAVES. Ms. Hahn. 

Ms. HAHN. Thank you, Mr. Chairman, Ranking Member 

Vela ́zquez. 

Ms. Mills, it is wonderful to listen to you today and I know while 

we are bringing forward problems and issues that we have heard 

in our districts, it is clear that you and the entire Small Business 

Administration is working, I think, you know, daily to try to do 

what you are intended to do, which is really to support our small 

businesses and try to get the capital into the hands of startups, 

current businesses, and I think you are doing a great job. 

Since I have been on the Small Business Committee, I have done 

what many of the members have been doing longer than me, and 

that is actually going and meeting with small businesses in my district. I think I am up to 80 just in the last month that I have met 

with personally. And I have held roundtables, I have walked into 

their businesses unannounced, and I am beginning to hear sort of 

a common theme, which I think you have heard today, which is the 

paperwork that is needed to apply for these small business loans 

is many times daunting, and as we have heard some of them feel 

like it is not really even worth their time. 

You know, as of February of this year, the SBA preferred lenders 

can approve loans using the new Small Loan Advantage Process. 

And the goal of this program is to expand the availability of small 

dollar loans by allowing existing SBA lenders to make loans under 

250,000 using a two-page application. SBA has shortened the approval time to minutes if the application is submitted online, and 

from 5 to 10 days for non-delegated lenders. It seems to me that 

this Small Loan Advantage Program is exactly the type of solution 

that I think small businesses are looking for. 

What do you think we could do to expand this program and make 

it accessible to everyone? How can we ensure that preferred lenders are using the small loan advantage process for all of their small 

loans? 

Ms. MILLS. Well, thank you, Congresswoman, and thank you for 

your letter. I know that you have met with over 50 small businesses. 

Ms. HAHN. It is up to 80 now. 

Ms. MILLS. And clearly you just said it better than I could. We 

have a product that we have designed. We are reducing our paperVerDate Mar 15 2010 07:59 Jun 14, 2012 Jkt 074279 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\A279.XXX A279

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work, increasing our turnaround times, keeping a level of underwriting to make sure we have risk oversight. We are taking those 

principles of that product and now broadening them exactly as you 

had asked. 

Ms. HAHN. You know, one of the other things I heard from my 

small businesses was under the Loan Guaranty Program. The criteria that SBA has to qualify for the loans is sometimes broadened 

when they actually go to the banks to, you know, access the loan. 

The banks put on more criteria than SBA requires. One of the 

issues they brought forward to me was while SBA, the Loan Guaranty Program does not require collateral—real estate as collateral. 

When they go to the bank, the banks say, by the way, we are going 

to require that you put up real estate as collateral. What can we 

do in working with the banks that are lenders, you know, to not 

add criteria or add restrictions to these loans when SBA is clearly 

not setting these criteria forward to small businesses as a means 

to qualify? 

Ms. MILLS. We work with about 5,000 of the 8,000 banks. They 

are our partners. The first line in the credit process is generally 

the bank. The bank will make a credit decision because they are 

on the hook for somewhere between 50 and 25 percent of the loan 

as well. They have to have an independent credit decision. We have 

tried to coordinate, to work on paperwork reduction, but we have 

to make sure that both of us are satisfied in risk oversight. 

Ms. HAHN. Well, again, I would urge you to maybe work with 

some of our partners out there because, again, that clearly stops 

many of these small businesses, these startup companies from accessing this capital. So if you could work with them on maybe trying to keep their criteria at least the same as yours. 

And the last thing I will just say, and I wrote you in my letter, 

I would love to invite you to sunny Southern California and come 

to my district. I know that would be a great honor to have you 

there and I think there would be a lot of folks out there that would 

really enjoy listening to you and really hearing more about the programs that are available to small businesses. Come during the winter. 

Chairman GRAVES. Mr. Richmond. 

Mr. RICHMOND. Thank you, Mr. Chairman. Thank you, Administrator Mills. 

One thing, and I will ask out of order, but we are talking about 

making sure that small businesses have the capital and access to 

capital so that they can flourish and they can fulfill their mission 

and they can continue to employ people, which is an important aspect of it, but the other aspect of it which drives all business is demand. How do we increase demand so that those businesses can 

continue to sell their products or widgets or gadgets or whatever 

it is that they are doing? 

Ms. MILLS. With the American Jobs Act, we want to put more 

cash in the hands of small business right now because we have 

seen that when they have more cash available, such as in the payroll tax cut, they can take that money and they can put it into advertising. They can put it into inventory. That creates more demand for their products. That creates more jobs. Then they can 

come for financing expansion. 


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That is one of the first things, to prime the pump. 

Mr. RICHMOND. Also, let me thank you for your administration 

coming down and participating in my small business fair that we 

had. We had over 347 small businesses sign up. I had a chance to 

talk to almost 120 of them on the opening night. And many of them 

sang the praises of our local SBA office in terms of the outreach 

and assistance that it gives. And now the new push, which I think 

is very important, is helping them understand that 95 percent of 

the consumers in the world are outside the United States and 

China, we must help them get to a point where we can sell our 

goods over there. And a few of them are taking us up on the offer 

of attempting to do that. And many of them left the small business 

fair with contracts with new vendors. So that was a very good 

thing. 

There are two issues and two suggestions they gave to me, and 

I think we submitted them to you. And I will give them to you. 

When the president announced expedited pay for contractors 

working with the government, they wanted to make sure that that 

trickled down to the subcontractors, to make sure that when the 

PRIME contractor was paid, that they do not unnecessarily hold up 

the subcontractors’ money. And I think there was a program, 

maybe 10 years ago, where the PRIME contractor had to indicate 

that the subs were paid or would be paid in a short period of time. 

So they expressed that that would help. Because if they do not 

have access to capital, they do not have the time. Well, they do not 

have the resources to float payroll and all of those things, waiting 

on that payment. 

The other suggestion that was made was—and I am sure it 

would ease a lot of members of Congress’ workload—was if we 

could put the status of 8–A and other programs, the application 

process, on line, almost like colleges can do now where they can log 

into a secure account and see if all of their documents are turned 

in. See if they need anything else. See if they are on a background 

check phase or whatever, because a lot of times if they know, then 

they can make better decisions. And I think that now with technology we can offer that so that they can keep up with that. 

Other than that, I do not have much else to offer. I would just 

again thank you for what you are doing and give you an opportunity to offer anything that you think you can need or what we 

need to do to help. 

And I will say that we are looking forward, at least in Louisiana, 

to working more and maybe another round of teaming grant opportunities which we were not successful in the first round, so maybe 

we can look at second and additional rounds to see if we cannot 

participate. 

Thank you, Mr. Chairman. 

Chairman GRAVES. Mr. Coffman has one more. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

Ms. Mills, I think you had mentioned the issue about banking 

regulations and its impact on small business and your view was, 

as it filters down, that at the top that there is certainly clarity and 

there is balance but that as it filters down perhaps there is not balance. And I just want to say that there is not balance, and I think 

it has hurt small business lending, particularly the community 


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bank level, where you do have a wide latitude for which the regulators can go, but yet they obviously take the most conservative approach just in case anything ever happens, that their fingerprints 

are not on it. And you have performing loans out there that are 

being downgraded, causing these institutions to increase their capital requirement and pull in their ability to lend. And I just think 

that is a huge issue impacting small business at the community 

bank level. 

One thing, I was visiting businesses last week in the district and, 

you know, you always wonder did you get the right cross section. 

But it seems like there were some signs of life. It seemed like although we felt like we were still skipping along the bottom, that 

the firms that survived this seem to have adapted. And, you know, 

they adjusted their business model, they made changes, and adding 

some employees. 

I visited a manufacturer and probably three services companies 

last week. Very different picture from 2009 when the economy was 

in freefall and these poor—these small businesses were getting 

their credit lines just cut off. I mean, and everybody was just going 

down. And so that was tough. 

I will get the other—get to probably a better picture next week 

when I am doing a job fair back in the district because I know 

there are a lot of unemployed folks that have been out of work for 

a very long time. And just last point, and if you could just respond 

to these, and that is I have had small businesses that are servicerelated companies come to me and they are very concerned about 

the impact—and these are kind of relatively low wage employees, 

one was a dry-cleaners who had a chain of dry cleaning stores but 

incorporated under the same entity had about—you know, had well 

over 50 employees. The other new as a janitorial firm with well 

over 50 employees. What is the impact on the health care bill going 

to be on their firm and their ability to keep these employees. And 

I will turn it over to you then. 

Ms. MILLS. Well, number one, I think you characterized it exactly right. We are seeing some signs of life among small business. 

We have some demand now and we have to make sure that they 

get access and opportunity. 

In October 2008, I was hearing ‘‘I need a loan to save my business.’’ Now I hear ‘‘I need a loan to buy that next piece of equipment, hire that next worker, make that next expansion.’’ That is 

good news, but that also means we have to be there with access 

and opportunity. 

Mr. COFFMAN. And let me just say real quick, I was able to 

visit—one of them, in fact, that I did mention was a restaurant 

that is being built and, in fact, that is with an SBA loan. So, thank 

your department for that. 

Go ahead, please. 

Ms. MILLS. Thank you. 

I would also ask small businesses to come to our website, where 

we can walk them through everything. With the Affordable Care 

Act, we know that small businesses now pay 18 percent more than 

large businesses, and when the exchange is open that premium will 

go down or disappear. So there are many good prospects. There is 


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also the health care tax credit. We have a tool on the website to 

see if they qualify. Those would be opportunities I would suggest. 

Mr. COFFMAN. Thank you, Mr. Chairman. I yield back. 

Ms. VELA ́ ZQUEZ. Ms. Mills, you recognized the need to increase 

lenders in your loan programs. Last year you had 2,727 total lenders; 1,349 made three loans of less. And my guess is that some of 

the lenders who came into the program were attracted by the provisions of the Recovery Act. So once those provisions expire I just 

wondered how many of those lenders are still active and making 

those loans. In the second panel we are going to have a credit 

union testifying. 

And my question to you is what will you do to retain the lenders 

that are participating as SBA’s loan programs, but also, what are 

you doing to increase direct union participation in your loan programs. 

Ms. MILLS. Thank you. Credit unions are about 10 percent of the 

current activity. We love credit unions and we think they can do 

a very good job with SBA. We are bringing them in through training, through education, through participation. Active participation 

with their association. On the ground, you are exactly right. We 

have to work very, very hard now to make sure that we continue 

to meet one of our base goals, which is active lenders. About 5,000 

of the 8,000 banks actually hold an SBA loan. But we track how 

many have made a loan within that year, and that number is 

around 3,000, in the high 2,000. 

So we need to keep that number up. And we are going to be 

working. We hold lender roundtables. We simplify our program. We 

walk them through applying. We do everything we can. So if you 

have lenders in your communities, particularly those who are on 

the ground and know these good small businesses, we will bring 

them in. That is why we are opening our doors to community development financial institution, who have good lending track records 

and we want to be there with as many doors, points of access, as 

possible. 

Ms. VELA ́ ZQUEZ. The challenge that I see when it comes to either 

community banks or credit unions is that you need the personnel. 

And they do not have that type of capital and expertise. So what 

will you do to help them? It is just not walking through. Just because of the pressure coming from regulators to make sure that 

they are complying with credit standards. How do you balance 

that? 

Ms. MILLS. Well, as you know we have a product for a lender 

that is only going to make one or two or three or four loans that 

allows them to use much more of their own documentation. We 

continue to streamline that so they are able to come into our program without undue burden. 

Ms. VELA ́ ZQUEZ. Okay. Thank you, Mr. Chair. 

Chairman GRAVES. Thank you, Administrator Mills for being 

here today. We appreciate it. I think that is the end of the questions. We will go ahead and seat the second panel, if we could. 


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STATEMENTS OF LYNETTA TIPTON STEED, EXECUTIVE VICE 

PRESIDENT, REGIONS FINANCIAL CORPORATION, TESTIFYING ON BEHALF OF THE CONSUMER BANKERS ASSOCIATION; SALLY ROBERTSON, PRESIDENT, BUSINESS FINANCE 

GROUP, TESTIFYING ON BEHALF OF THE NATIONAL ASSOCIATION OF DEVELOPMENT COMPANIES; K. RODGER DAVIS, 

MANAGING PARTNER, NORTH CREEK MEZZANINE, TESTIFYING ON BEHALF OF THE SMALL BUSINESS INVESTOR ALLIANCE; GARY GRINNELL, PRESIDENT AND CEO, CORNING 

FEDERAL CREDIT UNION, TESTIFYING ON BEHALF OF THE 

NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS 

Chairman GRAVES. Let me take a moment to explain the lights 

to you. Each of you have five minutes to testify and the lights will 

be green during that time. When you get down to one minute they 

will change to yellow and then when your five minutes is up it will 

go to red. 

And with that I will introduce our first witness today, which is 

Lynetta Tipton Steed, the executive vice president of Business and 

Community Banking at Regions Bank. Regions Bank is 

headquartered in Birmingham, Alabama. It is one of the largest 

full-service providers of financial services with 1,800 bank offices in 

16 states across the Midwest and the South. Ms. Steed joined Regions in 1992 and is now responsible for managing Regions’ Credit 

Underwriting, Documentation, and Administration for Small Businesses. She is testifying today on behalf of the Community Bankers 

Association. Thank you for coming all this way. I look forward to 

hearing your testimony. You might turn on your mike, too. There 

we go. 

Ms. STEED. Thank you. 

Chairman GRAVES. Go ahead and give your testimony, and then 

we will go through each one and then open it up for questions. 

STATEMENT OF LYNETTA TIPTON STEED 

Ms. STEED. Yes, sir. Chairman Graves, Ranking Member 

Vela ́zquez, and members of the Committee. My name is Lynetta 

Tipton Steed and I am an executive vice president and division 

head for Business and Community Banking for Regions Financial. 

Regions is a full service financial company headquartered in Birmingham, Alabama, with over 1,800 branches and 2,200 ATMs in 

our 16 state footprint. I am also a member of the Consumer Banking Association Small Business Committee, which includes top 

small business bankers who share the goal of improving the state 

of small business banking, including SBA programs. 

Small businesses are facing a number of challenges—weak economic conditions, high levels of unemployment, and low consumer 

confidence have led to low sales volumes, which have resulted in 

a lack of demand for small business loans. Despite the decline in 

overall loan demand, we continue to see healthy SBA lending. The 

SBA 7(a) and 504 programs have been effective during these economic times. Earlier this month, the SBA announced it supported 

$30 billion in fiscal year 2011, bringing the three-year total to over 

$70 billion in support of small businesses lending. 

Regions recognizes the value of SBA partnership and has a proven track record with its programs, having been a preferred lender 


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since 1996. In 2010, Regions identified increased SBA lending as 

a strategic initiative. Significant resources have been devoted to 

this initiative to improve the delivery and our special lending efforts. As a result, we have more than doubled our SBA lending 

staff. 

Regions has ranked in the nation’s top five for overall 504 loan 

approvals for the past two years. We have also dramatically increased our 7(a) lending over the past year by 82 percent. In addition to the SBA 504 and 7(a) programs, Regions participated in the 

Americas Recovery Capital Loan Program when it was in place, 

and recently added the export working capital and export programs 

as well. 

We intend to implement the newly named working capital 

CAPline program in the first quarter of 2012, and we were strongly 

considering the contract CAPline program as well. 

So what can be done to make things better? The loan enhancements provided under last year’s Small Business Jobs Act, allowed 

the SBA to raise the guarantee on its 7(a) and waive certain fees 

on both (7a) and 504 loans. While in effect, these provisions had 

a tremendous effect on the ability of banks and small businesses 

to utilize these important programs. 

As an example of this effectiveness, in the fourth quarter of 2010, 

Regions’ application trends and approval trends increased by more 

than 25 percent over the prior quarter. Also, the Small Business 

Jobs Act’s permanent increase in 7(a) and 504 limits from $2 million to $5 million and its permanent increase in microloan limits 

from $35 to $50,000 have been helpful. However, the act only temporarily increased the cap on SBA express loans, a subprogram of 

7(a) from $350,000 to $1 million. In order to expand access to much 

needed working capital. 

A further streamline 7(a) loan process would help borrowers attain loans more easily. The SBA has done a good job at enhancing 

but there are relatively easy to implement adjustments that could 

be made to the 7(a) loan process that would expedite originations 

of small business loans. 

For example, allowing financial institutions to use their own application and notes for all SBA loans would be helpful. 

The SBA currently allows lenders and credit policies on express 

loans, which has greatly improved that process. Effective aside 

from the SBA Lender Oversight is another crucial area of concern. 

While there needs to be strong and consistent lender scrutiny, fluctuating economic conditions often call for flexibility. Overall, CBA’s 

members have all reported increased efforts to help small business 

access capital. Many CBA members have hired new small business 

bankers, initiated second look programs to ensure that every possible loan is being made, and incorporated other initiatives to improve delivery of SBA programs. 

I could cite many good outcomes for SBA programs, but as we 

look forward, CBA encourages Congress to monitor the SBA guaranty levels. It is also important that they have the funding and authorization necessary to continue to work with the private sector in 

financing American small businesses. 


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In conclusion, we support improvements in the SBA loan structure, but there is also a need for greater certainty in SBA programs, especially during these difficult economic times. 

CBA looks forward to working with this committee and the SBA 

to improve lending disputes and the SBA to improve lending to 

small businesses. Thank you for the opportunity to appear before 

the Committee to discuss the SBA and the current status of small 

business loans lending. I would be happy to address any questions 

you may have. 

[The statement of Ms. Steed follows on page 71.] 

Chairman GRAVES. Thank you, Ms. Steed. 

Our next witness here today is Sally Robertson, president and 

chief executive officer of Business Finance Group, a community development company located in Fairfax, Virginia. Ms. Robertson is 

testifying today on behalf of the National Association of Development Companies. She has served Business Finance Group as president and CEO for 15 years and she has also been involved in several CDC industry organizations. Serves as vice chair of the board 

of directors of the National Association of Development Companies. 

Thank you for being here. 

STATEMENT OF SALLY ROBERTSON 

Ms. ROBERTSON. Thank you very much. Again, my name is Sally 

Robertson, president of Business Finance Group in Fairfax, Virginia. We are a non-profit certified development company and I 

also serve as vice chair of the National Association of Development 

Companies. I am very pleased to provide comments regarding the 

niche filled by the 504 Program for small businesses seeking longterm capital to grow and create jobs. 

Successful small businesses are innovators who often buck the 

trend in order to realize a market advantage. Many small businesses are now ready to take that next growth step, but banks are 

constrained by the impact of losses on their capital and they face 

regulatory criticism for their real estate and small business lending. As the need for new long-term capital increases, conventional 

sources and financing are less available. What is the real impact? 

Without capital even successful businesses cannot grow. Capital is 

the grease that enables businesses to grow and add new jobs. Without new jobs, America cannot pull itself out of this jobless recovery. 

As you all know, 504 is a leverage program that incentivizes 

banks to lend to small businesses by sharing the risk of a longterm loan. Small business owners benefit from a 20-year loan, and 

an attractive 20-year fixed rate, along with terms that allow them 

to preserve cash flow for growth. With short-term deposits as their 

source of funds, banks cannot offer the same terms to small businesses, but as a participant in the 504 project, banks are able to 

offer a low-risk, conventional loan that provides a return to their 

stockholders. The 504 program is an excellent match of the private 

sector and public sector working together to provide capital for 

growing small businesses. 

Best of all, 504 projects create new jobs and save jobs in communities across the country. The 504 program is the most successful 

economic development financing program provided by the federal 

government. A study completed by California State University 


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three years ago demonstrated that in just a two-year period, 504 

loans directly created 54,000 new jobs and indirectly led to another 

66,000 jobs. Further, for every dollar SBA spent to operate the 504 

program, federal, state, and local governments realize $94 in new 

tax revenues. 

We would like to note that NADCO supports effective SBA oversight and we applaud SBA’s steps to improve those functions. SBA 

is currently staffing senior managers for the Office of Credit Risk 

Management, and we encourage SBA to rethink its oversight systems. Today, SBA has two different 504 portfolio oversight systems 

operated by two different departments. Not surprisingly, they 

sometimes come up with different reviews of CDC loan performance. We encourage SBA to move towards a single portfolio monitoring system, establishing firm boundaries, making the rules 

clear, and providing consistent oversight will lead to a stronger 

lending process that reaches program needs yet curbs abuses. 

During the recent recession, the 504 program saw dramatic increases in defaults over historical levels. What the statistics, however, do not show are the small businesses that were saved. With 

troubled debt restructuring rules, banks are very inflexible in 

workout situations. However, the CDCs and SBA have some flexibility with the second trust. These successful workout situations 

have resulted in a business surviving that might otherwise have 

failed, resulting in more lost jobs in a fragile economy. 

The 504 program has become one of the most successful and largest economic development programs in the federal government. By 

leveraging its guaranty authority and private sector capital, SBA 

has directly assisted in the creation of millions of jobs through 

more than 150 billion in 504 first mortgages by banks and 504 second mortgages by CDCs. 

The public-private partnership is a unique program feature that 

encourages the investment of private capital in growing small businesses. The value of the 504 program can also be seen in successful 

small businesses who have used the 504 program to finance their 

next level of growth. Every CDC in every state can provide stories 

of small businesses who would not have achieved their current success without the ability to use the 504 program. And as we begin 

to climb out of this terrible recession, there are many small businesses whose continued existence is a result of successful workouts 

hammered out by CDCs and SBA on their behalf. 

We are excited to be working closely with the skilled and innovative SBA management team to look carefully at how the 504 program can continue to be relevant and beneficial to future small 

businesses. We hope that this effort will lead to improved oversight, improved processing, and more flexibility to encourage more 

banks and borrowers to participate in the 504 loan program. Small 

businesses that are nimble and forward thinking will lead us out 

of this recession by creating the new jobs we need. Let us help 

them do it sooner. Working together we can get America working. 

Our thanks to Chairman Graves, Ranking Member Nydia 

Vela ́zquez, and the Committee for your leadership and support for 

America’s Small Businesses. Thank you. 

[The statement of Ms. Robertson follows on page 45.] 

Chairman GRAVES. Mr. Chabot. 


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Mr. CHABOT. Thank you very much, Mr. Chairman. 

I am pleased to welcome to the Committee this afternoon a constituent of mine from Cincinnati, Ohio, Rodger Davis. Mr. Davis is 

co-founder and managing director of North Creek Mezzanine, a 

small business investment company located in our community. Mr. 

Davis is testifying on behalf of the Small Business Investor Alliance, the industry association for small business investment companies. Mr. Davis has 25 years of experience in the banking sector, 

including commercial banking, real estate, leveraged finance, direct 

equity, and fund investing to name but a few areas of his expertise. 

We welcome you here this afternoon, Mr. Davis, and look forward 

to your testimony. 

STATEMENT OF K. RODGER DAVIS 

Mr. DAVIS. Thank you, Congressman Chabot, and thank you to 

the rest of you for giving me the chance to talk today. 

I am proud to represent the Small Business Investor Alliance. As 

Congressman Chabot pointed out, that is the old NASBC for those 

of you who do not recognize the name. 

My name is Rodger Davis, and I am co-founder and managing 

partner of North Creek. We are a $70 million SBIC fund located 

in Cincinnati. And to put that in perspective, that puts us at the 

smaller end of the range for SBIC funds. And frankly, we think 

that is a good thing. We can focus on smaller companies. 

My partner, Barry Peterson, and I are lifelong bankers to small 

businesses. And when Provident was sold in 2004, we set off to create a fund dedicated to lending and investing in small businesses, 

really continuing what we love to do at the bank. 

The credit crunch in ’08 and ’09 really served as the catalyst for 

the creation of our fund. Our research quickly led us to the SBIC 

program for several reasons. We were comfortable with the regulatory oversight and licensing process, the program is targeted exclusively towards small business where we felt there was really the 

greatest need, and it could amplify our private capital through the 

use of low cost leverage from the SBA debenture program. 

To me, the SBIC program is a perfect example of a public-private 

partnership that works. So in the spring of 2010, we opened our 

doors for business. The biggest surprise I think that Barry and I 

have experienced so far has been the overwhelming response to the 

nation’s small business need for capital. We reviewed over 350 

business plans from company owners nationwide seeking capital. 

We originally thought that we would see a lot of companies losing 

money that frankly did not deserve the capital, but it has been 

quite the opposite. There are many companies that we have been 

unable to help that we would have liked to. 

Unfortunately, for most small businesses the traditional markets 

remain constrained or closed altogether. I have a few thoughts on 

why that is still the case. Many companies reside in the workout 

area of the banks because their revenues and profits declined in 

the recession. And until that backlog clears these companies will 

have a very difficult time growing as all cash flow will be dedicated 

to paying down the bank debt. I kind of call this the hangover from 

the credit crunch. 


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Bank consolidation, although there has not been as much in recent years, continues to have a negative impact on lending to small 

business. As a former banker, I understand the need for process ratios, systems, credit scoring, but for us it is about meeting management teams, listening to the story, and determining if they deserve 

the capital. Regional and small community banks are helping but 

it is not enough. 

So herein lies the value of the SBIC program in a firm like North 

Creek. In a year and a half we made seven loans to five companies. 

These companies are located in Cincinnati, Ohio; Austin, Texas; 

Elkhart, Indiana; Boulder, Colorado; and Sanford, Florida. I find 

this statistic remarkable myself when we put this data together, 

but these five companies have added over 200 new jobs in really 

less than a year. That is a 20 percent increase over their base employment. 

You can see the impact on a management team that now has the 

capital to grow. If Todd Cleveland and Any Nemeth of Patrick Industries and Elkhart were here they would tell you that bank lending is still very tight. But they would thank you for the SBIC program because of the capital they received from us they are now in 

position to grow and prosper. 

Randy and Rick Girard of Girard Environmental Services in 

Florida will tell you that the capital that they received from North 

Creek now puts them back on offense and they can now take advantage of growth opportunities in the market. 

Troy Augustine of iNET Interactive and Cincinnati would tell 

you that the acquisitions he has made to more than double the size 

of his company would not have been possible without the SBIC program and North Creek. 

Just a few thoughts on the future of the program. We need to 

make sure we keep successful fund managers in the program and 

Congressman Chabot’s bill 3219 will help by raising single and 

family fund limits. What happens is as funds grow they bump up 

against single and fund limits and those need to be kept modernized to keep up with funds as they grow so we keep them in the 

program. 

Secondly, we need to make sure banks continue to be active investors in the program. Banks have been long-term supporters of 

SBICs. It is a great partnership where we can work with their 

lending staff and they can work with us. Let us make sure they 

stay in the program in a big way. 

And lastly, I just want to make sure you understand that by raising taxes on carried interest, for small fund managers like me, the 

only impact will be that I have less capital to put into small businesses. The management fee that we earn pays for the overhead 

of the business and we only make money on the carried interest if 

our companies prosper and grow. So thank you. 

[The statement of Mr. Davis follows on page 52.] 

Ms. VELA ́ ZQUEZ. Mr. Chairman, it is my pleasure to introduce to 

the Committee Mr. Gary Grinnell. He is the president and CEO of 

Corning Federal Credit Union located in Corning, New York. He is 

testifying today on behalf of the National Association of Federal 

Credit Unions, a leading advocate for America’s Credit Unions and 

all of their members. Welcome. 


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STATEMENT OF GARY GRINNELL 

Mr. GRINNELL. Good afternoon, Chairman Graves, Ranking 

Member Vela ́zquez, and members of the Committee. My name is 

Gary Grinnell and I am testifying today on behalf of NAFCU. We 

appreciate the opportunity to participate in this discussion regarding financing programs under the Small Business Administration. 

At Corning Credit Union we have a well diversified business 

lending portfolio with minimal delinquencies. For the last two 

years we have been recognized as the top small community lender 

by the Small Business Administration in the 34 countries that 

make up the SBA district in which we are located. We started our 

business services program in 2006 and have been an important 

source of funding for small businesses in our areas ever since. 

During the recent economic downturn, many banks in our market stopped lending to their clients. Corning Credit Union has been 

able to fill the void and provide these businesses with the funding 

they need to continue to grow and create jobs. 

Since our SBA programs’ inception, we have made several SBA loans totaling over $8.2 million. Our average SBA loan is about 

$116,000. We participate in the SBA 7(a), SBA Express, and Patriot express loan programs. 

Many of our SBA loans are for entrepreneurs wanting to start a 

new business and create new jobs. A 2011 study commissioned by 

the SBA indicated that credit union small business lending has increased in terms of the percentage, both before and during the recent financial crisis. Well, bank small business lending has decreased. This demonstrates that credit unions continue to meet our 

capital needs of our business members, even during the most difficult times. 

Unfortunately, when Congress passed the Credit Union Member 

Access Act in 1998, it put in place an artificial cap on the ability 

of credit unions to offer member business loans. It should be noted 

that the non-guaranteed portions of SBA loans count toward this 

arbitrary cap. At Corning Credit Union we are approaching the cap 

and expect to reach it next year. This would ultimately impact our 

ability to make member-business loans, including SBA loans to the 

small businesses we serve. Fortunately, there is bipartisan legislation in the form of H.R. 1418, the Small Business Lending Enhancement Act pending before the Financial Services Committee 

that would address this issue. We urge the Committee members to 

support this important bill. 

Some NAFCU members tell us that they have scaled back on the 

number of small SBA loans, as a response to comments arising 

from SBA examinations. These credit unions feel that the SBA’s 

lender evaluation and scoring process disadvantages those that 

make a number of small, lesser collateralized loans as it compares 

them with those institutions making large, fully collateralized 

loans in their evaluations and scoring. If this evaluation process is 

not changed, it may eventually drive a number of small loans from 

lenders’ portfolios. NAFCU members have requested that the SBA 

address this deficiency, and we hope that the small businesses committee will be able to help as well. 

At Corning Credit we are an approved SBA lender. We are fortunate that we have hired an experienced SBA lending officer with 


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knowledge of the system to help run our program. Still one of the 

hurdles that we see is that our local SBA 7(a) applications are sent 

off to national offices for review by underwriters who do not understand our local economy. This impersonal step adds time to the approval process for the small business owner. 

Furthermore, the lack of having local SBA underwriters to interact with, they discouraged those lenders who do not have the expertise that we do on their staff. This makes it harder for those institutions that may want to do SBA loans but would only have limited volume that does not justify hiring an in-house SBA expert. As 

a result, some credit unions in this situation may opt not to get involved in SBA lending at all. 

There is a way that this concern can be addressed. NAFCU supports the reintroduction of the Credit Union’s Small Business 

Lending Act. This bill would make it easier for credit unions to become more involved in SBA lending and open the door to more access to credit for those small businesses and communities served by 

credit unions. 

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

have improved access to capital is vital for job creation. While the 

SBA’s financing programs are providing much needed opportunities 

to businesses, there are still obstacles withholding the programs 

from their full potential. We are confident this committee will do 

what is necessary to ensure that these programs are successful. 

Thank you for the opportunity to testify before you here today. 

I would welcome any questions that you may have. 

[The statement of Mr. Grinnell follows on page 57.] 

Chairman GRAVES. Thank you to all our witnesses. And I have 

one question for each of you actually. Out of curiosity, how responsive is the SBA when—you come to them with problems within the 

programs. How responsible are they to trying to rectify those? And 

are they very open for, for suggestion, for criticism? 

Ms. Steed. 

Ms. STEED. Yeah, I will start. 

I would say that the SBA is more receptive today more than 

ever. And undressing issues the community faces for lending. An 

example would be the rewriting of the 504 refinance provision we 

talked about earlier. That will have a dramatic effect on a lot of 

these small businesses who have conventional loans that are ballooning and it allows them to access their capital—access their equity to use for capital. So anytime we have given feedback to them 

they have been very responsive and very helpful. 

Chairman GRAVES. Ms. Robertson. 

Ms. ROBERTSON. I would certainly have to concur. The SBA has 

been extraordinarily responsive anytime we have gone to them 

with issues and concerns. It is a large agency. It may not happen 

as quickly as we would like but I think they have tried their best 

to listen and to actually come up with workable solutions. 

Mr. DAVIS. I found them to be very responsive. I think if you talk 

to some people in our industry that find them to not be responsive 

it is because of probably something on their end. 

Mr. GRINNELL. We have found them to be responsive, as well. 

The main change that we have seen from a negative perspective is 


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the consolidation to the national offices, as I mentioned in my report, as opposed to the local focus of where it used to be. 

Chairman GRAVES. How about when it comes to loans getting approved. I have had people come to me and talk to me about the fact 

that particularly if it is a new startup and they have got construction issues in there and it is delayed in getting that loan approved. 

As that delay spreads out then their costs go up, contractor costs 

go up. Where is that breakdown? Is it SBA approval? Is it just requirements that you have in the process? In some cases it seems 

to just drag on and drag on and drag on and then you have to, 

apply for more money on that loan, which creates more problems 

because the costs are going up? 

Mr. GRINNELL. I can speak to that. We would certainly like to 

see the process quicker. Again, I think it goes back to trying to 

work with somebody out of one of the national offices who does not 

understand the local economy. We’ve seen them be less experienced 

people over the last couple of years and we think that slows down 

the process. Sometimes it can take up to three to four weeks to get 

a loan approved, and if we were doing that loan in-house it would 

take a couple of days. So we definitely see that as an area for improvement. 

Chairman GRAVES. Ms. Robertson. 

Ms. ROBERTSON. From a 504 standpoint, we are now required to 

provide construction bids at the time a 504 application is submitted 

on a construction project for approval. A commercial reasonable 

standard would be that construction documents are provided at the 

time of a construction loan closing with the bank rather than at the 

time of SBA approval. So that is certainly delaying the approval 

process and likely causing borrowers funds not only delaying their 

settlement on a property but also if contractors are charging them 

fees for those kinds of things they are having to pay those in advance of having a loan approval. 

Chairman GRAVES. Ms. Vela ́zquez. 

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

Ms. Steed, you heard a lot of the members here asking questions 

to the administrator regarding the need to have more smaller 

loans, those defined at $150,000 or less. And since the Jobs Act increased the maximum SBA loan size to 5 million, the percentage 

of smaller loans has declined from 17 percent of total lending dollars in 2009 to just 8 percent in 2011. And the administrator, when 

I asked why this is happening, she said that banks are not making 

those smaller loans. My question to you is why. 

Ms. STEED. Well, I cannot speak for all banks. I can only speak 

for my bank and the members that I sit on with the Small Business Committee with the CBA. And we are not finding it difficult 

to fund those customers. It is an opportunity that we have through 

our 7(a) and our express programs. It is a core program we already 

have in play today. We also have a small loan advantage. We do 

not participate in that one separately at Regions because we have 

the core programs that accomplish the same thing. And so we are 

not finding that to be a challenge. It is just a matter of incenting 

them to kind of get in the game, make sure they have the business 

plan to support the credit. 


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Ms. VELA ́ ZQUEZ. The SBA loans that your bank makes, what is 

the percentage of smaller loans, under 50,000 or less? 

Ms. STEED. I do not have it off the top of my head. 

Ms. VELA ́ ZQUEZ. Would you be able to find it? 

Ms. STEED. I could. I absolutely could do that for you. Yes, 

ma’am. 

Ms. VELA ́ ZQUEZ. Thank you. 

Ms. Robertson, last week the SBA released final rules for the 504 

Refinancing program. We do not allow CDC lenders to make loans 

in excess of $12.5 million with no requirement that they create a 

single job. And as we all know, with this job loss economy, the challenge that we have is job creation. So given that fact, was it a good 

idea for the agency to abandon this critical element of the 504 program? 

Ms. ROBERTSON. I think the intention here is to save businesses 

that might not be able to find financing or alternatively provide a 

financing structure that is more appropriate to the business, improving their cash flow so that hopefully they can then add jobs. 

Ms. VELA ́ ZQUEZ. The intent of the program, 504, has always been 

economic development and job creation. And to me this flies in the 

face of the original purpose of 504. The fact that it requires to create jobs does not take away the debt refinancing, even if you tell 

me, well, it did not create new jobs but at least we are preserving. 

Mr. Davis, the SBIC program has had proven success at helping 

later stage businesses but has struggled to raise early stage and 

startup firms since the participating securities program was eliminated. Are there ways that the debenture program could be adapted to help meet the needs of earlier stage businesses? 

Mr. DAVIS. Well, I think the first comment, the debenture program, because it has a current pay interest feature we need to be 

sure that we have portfolio companies that are paying our investments current. 

Now, some SBIC firms could take lower leverage and so they 

could sprinkle in some additional equity investments that could go 

towards more early stage. But the classic 2:1 leverage, which we 

are, it is really incumbent upon us to stay away from those. We 

need to be financing companies that are just going to the next 

level. So I think lower leverage could be an avenue. And maybe, 

you know, just relook at what was wrong with the participating securities program and, you know, look at it retrospectively and say 

what could we have done differently? So. 

Ms. VELA ́ ZQUEZ. Mr. Grinnell, in your testimony you emphasized 

the continued need for credit, especially among businesses who are 

seeking smaller loans. Do you believe that the SBA large bank 

lenders overemphasize more profitable loans, like loans to established businesses with larger credit—greater credit needs to the 

detriment of smaller firms? 

Mr. GRINNELL. Well, in terms of our credit union, we like to 

make small loans to help your members. And I think credit unions 

in general like to make small loans. We have seen very strong demand throughout the entire financial crisis. As I mentioned before, 

we are almost at our member business loan cap and we are going 

to have to stop lending. From what we heard from our members 

the banks have turned them away. We have helped entrepreneurs 


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star started with very small loans that the banks were not interested in. And those members are now hiring additional individuals, 

additional employees in our communities and making a real positive impact in our communities. 

Ms. VELA ́ ZQUEZ. Ms. Steed, I do have some numbers here about 

how your bank increased by 58 percent in terms of the average of 

your loan by 146. It seems to me that you are making much larger 

loans at the expense of smaller loans. And I will encourage the 

bank at least when you are doing 7(a) loans that you tackle the gap 

that exists because you have a responsibility. You are participating 

in a program that is a guaranty by the federal government. And 

the same is true with a lot of the other banks. 

Ms. Robertson, beginning this year, taxpayers will be paying $90 

million to subsidize 504 loans. In the past, some CDCs have provided their executive staff with salaries and benefits that defy their 

supposed status as a non-profit company. And I just would like to 

hear—we know that IG did an investigation. What is it that your 

members are doing—your company is doing to ensure that this 

type of practice does not take place any more. You have executives 

making or at least they were making $800,000 in salaries. 

So I would like to hear what you are saying because we have to 

protect the taxpayers’ dollars. 

Ms. STEED. Absolutely. I think our trade association is extraordinarily concerned about those practices. We have provided guidance to our members on IRS requirements for non-profits, on board 

governance. We have talked to SBA about oversight and enforcement. Unfortunately, the trade association is not really an enforcement or police vehicle but is doing its best to provide training to 

members on those topics. 

Ms. VELA ́ ZQUEZ. Well, training them to have the discussion because I know that you cannot enforce how much salary you are 

going to provide any of the executives but it is a good PR that it 

might benefit the entire association. 

Ms. STEED. Absolutely. 

Chairman GRAVES. Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

A few quick questions just to clarify and make sure I heard correctly the first time through. Ms. Steed, did you say that your organization had doubled SBA lending staff over the course of the last 

period of time? 

Ms. STEED. Yes, sir. 

Mr. MULVANEY. Are they—do they specialize in SBA lending or 

are they doing SBA lending part of the time and then regular commercial lending the rest of the time? 

Ms. STEED. No, they specialize in SBA lending. It is a build out 

for underwriting, paralending, packaging, everything, so that the 

process is streamlined. We are reeducating our relationship managers out in the field with this new—we have this streamline process because that is a negative connotation. We heard it earlier 

today when Administrator Mills was speaking. It is cumbersome. 

So what we are trying to do as an industry and as a bank is 

streamline it so when you have opportunities you do not have to 

reinvent the wheel every time. So that is dedicated SBA. 


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Mr. MULVANEY. And I guess one of the things, Regions is a large 

bank. They have a presence in my district. 

Ms. STEED. They are a regional bank. 

Mr. MULVANEY. They are good folks, right? I mean, I am from 

South Carolina. You all have a presence there. 

Ms. STEED. Yes. 

Mr. MULVANEY. And I guess what I am struggling with is—here 

is my question. In your opinion, has SBA lending gotten to the 

point where it is so complex that you have to do that in order to 

do it in a cost-effective manner? 

Ms. STEED. I think the impression is that is the impression for 

your borrowers out there and the bankers. So reeducating them is 

important. You can streamline it. You just have to get back out and 

reeducate because that perception is out there. 

Mr. MULVANEY. Gotcha. Thank you very much. 

You also mentioned I think that the SBA now allows you to use 

your own notes. Is that right? 

Ms. STEED. For the 7(a) express program. We are suggesting that 

could be something we could look at for all of the core programs, 

to streamline it. 

Mr. MULVANEY. And I used to do some corporate work. Tell folks 

why that is important. 

Ms. STEED. You do not have to duplicate your efforts. It is one 

application one time. It goes through the process easier. When you 

have extra documentation from the SBA side you seem to be duplicating your efforts. And this just makes it very, very convenient, 

very fast, and you will get onto getting that loan funded. 

Mr. MULVANEY. And the standardization, them allowing you to 

use your own documentation, which is absolutely critical, is it just 

in 7(a) or are you seeing it in other programs as well? 

Ms. STEED. Right now I believe it is just 7(a) Express and we are 

trying to get that broadened. We are making that suggestion. 

Mr. MULVANEY. Gotcha. Thank you very much. 

Mr. Grinnell, you said some of your members, and again, I come 

from an area, textile communities, very strong credit union presence where I am from. And you said that some of your members 

have scaled back on some of their smaller loans. Is that correct? 

Did I hear that right? The number of loans and so forth? 

Mr. GRINNELL. I said that—well, we have very strong demand. 

We are continuing to make a very large number of small loans as 

a credit union. What I have heard from other credit unions is based 

on the way that the SBA does their risk ratings and it does not 

really compare apples to apples; it compares institutions that do a 

lot of small loans with institutions that do a very few large loans. 

And based on that, so if you have a lot—if you have more small 

loans that go past due, that can basically hurt your rating. So it 

could potentially discourage institutions from making the smaller 

loans. 

Mr. MULVANEY. Is there a fix to that? 

Mr. GRINNELL. I believe they should change the risk rating system. 

Mr. MULVANEY. Give me an example. I am not familiar with the 

risk rating system that they use. 


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Mr. GRINNELL. Well, first of all, I should say that that is also 

what we have heard in talking with other credit unions, other 

NAFCU members, as a credit union, Corning Credit Union, we 

have not had a particular challenge with this issue, so I am not an 

expert on exactly, you know, what needs to change but, you know, 

we have definitely heard that—and it just does not make—I mean, 

just common sense approach. You know, you are comparing apples—you are not comparing apples to apples. 

Mr. MULVANEY. I gotcha. Mr. Davis, I think I heard you say that 

there was some level of consolidation going on within your industry 

and that I think you said that that led to less small business lending. Is that accurate? 

Mr. DAVIS. You know, the statistics probably may or may not 

support that. What it does though is it significantly changes it. 

Mr. MULVANEY. In what fashion? 

Mr. DAVIS. Well, for example, if you have fewer assets, a service 

company, for example, a lot of the larger banks now, they will be 

happy to give you an asset-based loan. Very simple, very easy to 

standardize. So it is different. I am sure the large bank would say 

we are making small business loans, but they are not making small 

business loans to companies that have a wrinkle in their past and, 

boy, a lot did. I call Asset Light companies service companies. Specialty manufacturing companies. Those are very difficult for the 

large banks to make. 

So, you know, again, we are in the market day in and day out. 

We are finding—I will give you an example. We had a portfolio 

company of ours that went out to the market. Great company. Very 

light in terms of assets. They went out to 10 banks, got 1 proposal. 

Great company but it just did not have—it did not fit the box. So 

if you do not fix the box, you are in trouble. And so you are going 

to need a firm like us to step in and work with a bank that can 

do a small piece that is simple straightforward and does not have 

a wrinkle to it. 

Mr. MULVANEY. Thanks very much. Thank you, Mr. Chairman. 

Mr. CHABOT. Thank you very much, Mr. Chairman. 

Mr. Davis, I just have a couple questions. First, how will an increase in the SBA leverage limits for SBICs as proposed in the legislation that we have introduced, the H.R. 3219 as you had mentioned, how will that affect the ability to provide capital to more 

small businesses? 

Mr. DAVIS. Well, what happens, so you get fund managers like 

ourselves. This is our first fund. It is a $70 million fund. If we are 

successful, and I hope we are and I am confident we will be, we 

will go out for a second fund. We will probably be able to raise 

more capital in the second fund. So our family of funds can start 

bumping up into an aggregate limit that the SBIC program currently has. In addition, there are single aggregate limits and so 

there are a lot of successful fund managers that start in the SBIC 

program and then they graduate out of it and move on to a nonSBIC program. And as they move out they may or may not stick 

with small business. They may move on. So by expanding that family of funds’ limit you will keep more managers dedicated to small 

business. 


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Mr. CHABOT. Thank you. And you had mentioned, I think you 

have 70 million available funds and I think you had seven loans 

out to five companies. How much of the 70, for example, would you 

have used up in those loans, approximately? 

Mr. DAVIS. 12.3 million. So we are making—again, we are on the 

small end of the range for SBICs, and I think that is a really good 

thing, especially for our market. There is a lot of small business 

owners that do not need $10 million or $20 million. We are making—our average loan size is about $1.8 million. And we have got 

a half million dollar loan. It was our first loan. It turned out to be 

a great loan. The company now has made two subsequent acquisitions and they have doubled the number of employees they have. 

Mr. CHABOT. That is great. Now, as far as the—I think you said 

you had about 350 companies that you had looked at. 

Mr. DAVIS. Correct. 

Mr. CHABOT. Those are actually applications that they had gone 

through the process or is that what it was basically? 

Mr. DAVIS. Yeah. We manage a pipeline database so every transaction that we evaluate is logged and entered. So we will have received information on the company. If we just get a phone call and 

it is not a fit, we do not enter it into the pipeline. So I think we 

put in our business plan to the SBA that we would review 200–250 

business plans in a year and it is almost doubled that. 

Mr. CHABOT. Okay. 

Mr. DAVIS. And the other interesting part is we thought we 

would get a lot of just no right out of the gate but we are not seeing that. We are seeing a lot of companies that are making money, 

that have a business, that deserve capital. Now, you know, we pick 

and choose the ones we think are best for our fund but we are seeing a high percentage of very viable candidates. 

Mr. CHABOT. What were the other ones missing or wanting? You 

know, if there were only seven loans and you had, you know, 350 

applications and they were good, you know, what—— 

Mr. DAVIS. It just may be the structure. It may be the business. 

Again, you know, we have got private investors so our job is to take 

the best of what we see and we do that. It could be we lost it to 

a competitor. Somebody else saw it differently than we did and 

were willing to price it differently. There is a whole host of—we 

have some bias. You know, we have been in this industry a long 

time so I have seen certain industries be good candidates for loans 

and some be not quite so good candidates for loans. And so we 

make that distinction as well. 

Mr. CHABOT. Okay. Thank you. 

This is a little broader question and I would be happy—anybody 

who might want to take this one on. You know, there has been a 

lot of talk lately, whether it is the president’s Jobs Bill or talk that 

was related to the debt ceiling debate that occurred last summer 

and various things about increasing taxes in one capacity or another on investors. Or, you know, the top 1 percent are not paying 

their fair share but I do not think it is really the top 1 percent they 

are talking about. They are talking about a lot bigger percent of 

the people than that that allegedly is not paying their fair share. 

What affect would actually increasing taxes, especially in these ecoVerDate Mar 15 2010 07:59 Jun 14, 2012 Jkt 074279 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HR\OC\A279.XXX A279

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nomic times? What sort of affect would that do you believe have on 

the economy overall and small business investing in particular? 

Ms. STEED. That is actually a topic that, you know, we watch in 

the banking industry quite closely. You know, we were starting to 

see an increase in our application volume this summer and then 

when the media started paying a lot of attention to the debt ceiling 

discussions that were happening you could literally just watch the 

application volume just drop. And so what is happening is small 

business owners are tuning in to anything that creates a level of 

uncertainty and they are responding to it by holding back, maybe 

sitting on the sidelines, not expanding, not hiring new people. They 

have learned to do, you know, more with less because they are just 

not sure what is happening. So anything we could do to keep certainty around it. That is taxes, that is any regulation. That is anything that is coming out that creates a level of unknown, they are 

doing a wait and see and that is not helping us to get them motivated to get back in the game. 

Mr. CHABOT. Okay. Thank you. Anybody else, Mr. Chairman, if 

they have time to answer it if anyone wants to or are we—— 

Mr. DAVIS. I would just chime in we heard the same thing from 

our business members. It is just the uncertainty, whether it is taxation or regulation, and it just, you know, it puts them more on the 

sidelines from a borrowing expanding perspective. So, you know, 

we definitely hear evidence of that. 

Mr. CHABOT. Thank you very much. I yield back, Mr. Chairman. 

Ms. VELA ́ ZQUEZ. Yes. I have a question for Mr. Grinnell. 

You told us that your credit union hired an expert, right, on 7(a)? 

Mr. GRINNELL. Correct. 

Ms. VELA ́ ZQUEZ. So how could we encourage other credit unions 

who might not have maybe the resources to hire someone to be able 

to participate in the SBA loan programs? 

Mr. GRINNELL. Well, I think there are a couple different ways. 

One of them I mentioned is the increasing of the MBL cap because 

credit unions can only lend up to 12.25 percent of their assets in 

business loans. So that in itself does not incent credit unions to get 

into the business lending game. Only about 2,200 credit unions out 

of 7,300 offer business loans. So that in itself would help credit 

unions do more SBA lending. The other would be the reintroduction and passage of the Credit Union Small Business Lending Act. 

There are provisions in there that are designed to encourage more 

SBA lending. 

Back to your comment about our expertise. If we did not have 

the expertise on staff we would not be doing the number of SBA 

loans that we are doing today. We would not be willing SBA 

awards if we did not have that expertise on staff. It is critical because of the paperwork-intensive process. 

Ms. VELA ́ ZQUEZ. Let me ask you a question or for you to clarify 

to me. The guaranty portion of SBA loans do not count against the 

membership cap, right? 

Mr. GRINNELL. That is correct. 

Ms. VELA ́ ZQUEZ. Okay. Thank you. 

Chairman GRAVES. With that I want to thank all of you for participating today. This has obviously been a very enlightening and 

timely hearing as a matter of fact. 


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But with that I would ask unanimous consent that all members 

have five legislative days to submit statements and supporting materials for the record. And without any objection it is so ordered. 

And with that the hearing is adjourned. Thank you. 

[Whereupon, at 2:26 p.m., the Committee hearing was adjourned.] 


pmangrum on DSK3VPTVN1PROD with HEARING
41 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 104 here 74279A.001
42 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 105 here 74279A.002
43 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 106 here 74279A.003
44 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 107 here 74279A.004
45 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 108 here 74279A.005
46 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 109 here 74279A.006
47 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 110 here 74279A.007
48 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 111 here 74279A.008
49 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 112 here 74279A.009
50 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 113 here 74279A.010
51 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 114 here 74279A.011
52 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 115 here 74279A.012
53 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 116 here 74279A.013
54 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 117 here 74279A.014
55 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 118 here 74279A.015
56 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 119 here 74279A.016
57 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 120 here 74279A.017
58 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 121 here 74279A.018
59 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 122 here 74279A.019
60 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 123 here 74279A.020
61 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 124 here 74279A.021
62 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 125 here 74279A.022
63 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 126 here 74279A.023
64 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 127 here 74279A.024
65 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 128 here 74279A.025
66 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 129 here 74279A.026
67 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 130 here 74279A.027
68 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 131 here 74279A.028
69 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 132 here 74279A.029
70 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 133 here 74279A.030
71 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 134 here 74279A.031
72 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 135 here 74279A.032
73 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 136 here 74279A.033
74 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 137 here 74279A.034
75 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 138 here 74279A.035
76 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 139 here 74279A.036
77 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 140 here 74279A.037
78 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 141 here 74279A.038
79 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 142 here 74279A.039
80 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 143 here 74279A.040
81 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 144 here 74279A.041
82 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 145 here 74279A.042
83 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 146 here 74279A.043
84 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 147 here 74279A.044
85 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 148 here 74279A.045
86 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 149 here 74279A.046
87 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 150 here 74279A.047
88 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 151 here 74279A.048
89 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 152 here 74279A.049
90 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 153 here 74279A.050
91 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 154 here 74279A.051
92 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 155 here 74279A.052
93 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 156 here 74279A.053
94 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 157 here 74279A.054
95 


pmangrum on DSK3VPTVN1PROD with HEARINGInsert offset folio 158 here 74279A.055