U.S. GOVERNMENT PUBLISHING OFFICE

27–252 WASHINGTON : 2018

OVERSIGHT IMPROVEMENTS NEEDED: SBA OIG’S 

REVIEW OF THE MICROLOAN PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS, 

OVERSIGHT, AND REGULATIONS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

OCTOBER 12, 2017 

Small Business Committee Document Number 115–041 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

DON BACON, Nebraska 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

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

Hon. Dave Brat ........................................................................................................ 2 

Hon. Dwight Evans ................................................................................................. 3 

WITNESSES 

Mr. Hannibal ‘‘Mike’’ Ware, Acting Inspector General, United States Small 

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

Mr. William Manger, Associate Administrator, Office of Capital Access, 

United States Small Business Administration, Washington, DC .................... 5 

APPENDIX 

Prepared Statements: 

Mr. Hannibal ‘‘Mike’’ Ware, Acting Inspector General, United States 

Small Business Administration, Washington, DC ..................................... 17 

Mr. William Manger, Associate Administrator, Office of Capital Access, 

United States Small Business Administration, Washington, DC ............. 21 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Audit of SBA’s Microloan Program ................................................................. 24 

The Friends of the SBA Microloan Program .................................................. 43 

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SBREP-219A with DISTILLER

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OVERSIGHT IMPROVEMENTS NEEDED: SBA 

OIG’S REVIEW OF THE MICROLOAN PROGRAM 

THURSDAY, OCTOBER 12, 2017 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND

REGULATIONS, Washington, DC. 

The Subcommittee met, pursuant to call, at 2:00 p.m., in Room 

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

of the Subcommittee] presiding. 

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

Adams, Evans, and Murphy. 

Chairman KELLY. I call this hearing to order. Today we will be 

examining the Small Business Administration’s Microloan Program, specifically, the SBA’s Office of Inspector General’s recent 

audit of the program. The Microloan Program was the created to 

help women, low-income citizens, veterans, and minority and entrepreneurs. The program’s mission is to provide microloans, along 

with training and technical assistance to help give qualifying small 

businesses a boost to start up, stay open, and even to grow. This 

is how the program is supposed to work. SBA makes direct loans 

to intermediaries. These intermediaries then use the proceeds from 

the direct loans to make small short-term loans to eligible small 

businesses. Although the intermediaries can lend up to $50,000, 

the average microloan is $13,000. These intermediaries are nonprofit community-based organizations with lending and business 

management experience. SBA’s Office of Capital Access is responsible for overseeing the Microloan Program, specifically, the intermediaries that are the face of the program for small businesses. It 

is supposed to make sure that the intermediary allows only qualifying small businesses to participate in this program; to make sure 

that the intermediary’s loans’ files are accurate and complete; to 

make sure that the intermediary is following SBA’s lending policies 

and procedures. 

Ultimately, SBA is supposed to make sure that the Microloan 

Program, a program there to help the smallest of the small guys, 

is actually fulfilling its purpose. According to a recent audit from 

the SBA’s Office of Inspector General, however, the agency needs 

to improve its oversight of the Microloan Program. Two weeks ago, 

the Office of the Inspector General released a new audit of the 

Microloan program. Its last audit was in 2009. 

According to the recent audits, OIG determined that SBA is unable to measure whether the program is performing well. In fact, 

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2 

OIG found that SBA did not even implement all the recommendations from the 2009 audit, even though SBA said it would. That is 

not acceptable. SBA must do better. 

The Microloan Program is an important program to this Committee. And for that reason, strong oversight is needed. This oversight is needed to make sure the program is functioning as intended, and without fraud, waste, and abuse. We expect SBA to 

completely and fully implement the OIG’s recommendations this 

time around. We appreciate the witnesses being here today and 

look forward to hearing their testimony. I now yield to our ranking 

member, Ms. Adams. 

Ms. ADAMS. Thank you, Mr. Chair, and thank you all for being 

here today, and we appreciate the time you have taken. In recent 

years, the nature of small business financing has evolved. No 

longer do many banks want to take on a business loan under 

$250,000, leaving much of the Nation’s small employers emptyhanded. SBA’s Microloan program fulfills a critical need in the capital markets by serving entrepreneurs who are not served by the 

private sector or SBA 7(a) loan programs. The Microloan program 

is a key resource for startup, newly established and growing small 

businesses as well. It has provided millions of dollars in financing 

and technical assistance to small business and entrepreneurs since 

its inception in 1992 by providing loan programs to non-profit 

intermediaries who, in turn, lend funds to the smallest of small 

businesses. The program helps borrowers streamline their operations, grow to profitability, and create new jobs. 

This Committee has recognized growth in microlending. And by 

recently passing legislation increasing the intermediary loan limit, 

we have extended the reach of the program. Doing so enhances the 

ability of small firms to access much-needed capital. And so, as we 

enhance the program, it is invaluable to consider the program’s 

performance at both the intermediary and agency levels. The Office 

of Inspector General has recently focused its attention on the SBA’s 

management of the program. The report found a number of improvements were needed to measure performance and ensure the 

program’s integrity. And a number of concerns were raised in regards to the reporting system and documentation of loans. So we 

take these issues very seriously, because it is our duty to guarantee 

the Microloan program performs at its best if we intend to see the 

success of entrepreneurs in our communities. So today’s hearing 

will provide us with the opportunity to hear about the OIG’s findings related to oversight and performance of the program. 

Overall, this Committee seeks to ensure that the Microloan program works with small business borrowers, and I look forward to 

hearing from our witnesses today and gaining their insights on 

how we can improve the program. And thank you, Mr. Chair. I 

yield back. 

Chairman KELLY. Thank you to our ranking member, Ms. 

Adams. And I now yield to the gentleman from Virginia, the chairman of Subcommittee on Economic Growth, Tax, and Capital Access, Mr. Brat. 

Mr. BRAT. All right. Our chairman did such a good job of summarizing the issues we are going to cover today, along with our 

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ranking member, that, in the interest of efficiency, I am going to 

yield back and look forward to your testimony. 

Chairman KELLY. I now yield to the gentleman from Pennsylvania, the ranking member on the Subcommittee of Economic 

Growth, Tax, and Capital Access, Mr. Evans. 

Mr. EVANS. In that spirit that the gentleman just expressed, 

and my ranking member did such a great job, I am, too, going to 

yield back in efficiency and effectiveness. Thank you. 

Chairman KELLY. Thank you. And as you guys can see, we 

work, I think, more bipartisan on this Committee than any of the 

other committees I am on. And that is just a wonderful thing to 

have such great members. If Committee members have an opening 

statement prepared, I ask that they be submitted for the record. I 

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

And you guys are both veterans. You have 5 minutes to deliver 

your testimony. The light will start out green. When you have 1 

minute remaining, it will turn yellow. And finally, at the end of 

your 5 minutes, it will turn red. I ask that you try to adhere to 

the time limit. 

I now want to formally introduce our witnesses today. Our first 

witness is Mr. Hannibal ‘‘Mike’’ Ware. Mr. Ware serves as the Acting Inspector General for the Small Business Administration Office 

of the Inspector General. The OIG is responsible for the independent oversight of SBA’s program and operations. The OIG conducted the audit that is the subject of today’s hearing. We look forward to hearing Mr. Ware’s testimony. 

And our second witness will be Mr. William Manger Mr. Manger 

is the Associate Administrator for the Office of Capital Access at 

the Small Business Administration. One of the programs Mr. Manger’s office administers and oversees is the Microloan Program. 

Thank you for joining us today. And with that being said, Mr. 

Ware, you are recognized for 5 minutes. 

STATEMENTS OF HANNIBAL ‘‘MIKE’’ WARE, ACTING INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS ADMINISTRATION; AND WILLIAM MANGER, ASSOCIATE ADMINISTRATOR, OFFICE OF CAPITAL ACCESS, UNITED STATES 

SMALL BUSINESS ADMINISTRATION 

STATEMENT OF HANNIBAL ‘‘MIKE’’ WARE 

Mr. WARE. Thank you very much, Chairman Kelly and Brat, 

Ranking Members Adams and Evans, and distinguished members 

of the Subcommittee. Thank you for the opportunity to be here 

today and for your continued support of the Office of Inspector 

General. We recently published the results of our audit of SBA’s 

management of the Microloan program. And I am happy to discuss 

our findings with you today. The Microloan program assists 

women, low-income veteran, and minority entrepreneurs as well as 

other small businesses in need of financial assistance. Under the 

program, SBA makes direct loans to intermediaries that, in turn, 

use the proceeds to make small short-term loans, microloans, up to 

$50,000, to eligible small businesses. SBA also awards grants to 

intermediaries to provide training and technical assistance to 

microloan borrowers. From fiscal years 2014 to 2016, interSBREP-219A with DISTILLER

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mediaries closed 12,168 microloans, totaling approximately $170 

million. 

As background, we initiated this review in response to a request 

from the Senate Committees on Small Business and Entrepreneurship to audit the program. And for historical context, our office conducted prior reviews of the Microloan program in 2003, and again 

in 2009. The objectives of our current review were to determine 

whether SBA effectively implemented actions to improve oversight 

of the Microloan program and the extent that SBA oversight is sufficient to measure program performance and ensure program integrity. We found SBA management did not effectively implement all 

prior audit recommendations to improve oversight. Furthermore, 

SBA management did not conduct adequate program oversight to 

measure program performance and ensure program integrity. 

These internal control weaknesses were due to SBA not having 

an overall site visit plan, an adequate information system, available funding for system improvements, or clear standard operating 

procedures. Additionally, SBA management focused on outputbased performance measures instead of outcome measures. In our 

review of the statistical sample of 52 microloan files, we found that 

data contained in SBA’s information system for 27 of the loans did 

not match the information included in the intermediaries’ loan 

files. 

In addition, we found that intermediaries did not have sufficient 

documentation to support that it originated and closed 85 percent 

of the loans in accordance with SBA’s requirements. As a result, 

SBA’s ability to validate microloan data, conduct analyses across 

multiple programs and systems, and capture outcome-based measures was impaired. We found there was no way to ensure program 

integrity or measure program success. These internal controls over 

the Microloan program are critical as Congress considers expanding the program. 

On a positive note, we also found SBA did take some steps to improve its oversight of the Microloan program. Those steps include 

the following: They developed a justification to request funds for 

technology improvements; they conducted a time study to evaluate 

staff time spent on tasks in support of technology improvements; 

and they developed a module within the program information system for new loan requests analysis which replaced the use of 

spreadsheets. 

To keep this progress moving forward, we offered four recommendations to SBA to improve SBA’s oversight of the Microloan 

program. We recommend that they continue efforts to improve 

their information system; develop a site visit plan to further monitor Microloan portfolio performance; update their SOPs to clarify 

requirements regarding evidence for use of proceeds and credit 

elsewhere; and update the Microloan reporting system manual to 

reflect current technology capabilities. 

SBA management agreed with the four recommendations, and 

our office will monitor these recommendations until we assess corrective action has been implemented. I am proud of the work performed by our auditors to provide to Congress timely insight into 

the Microloan program. Thank you once again for the opportunity 

to speak to you today, and I look forward to your questions. 

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Chairman KELLY. Thank you, Inspector General Ware. And, Mr. 

Manger, you are now recognized for 5 minutes. 

STATEMENT OF WILLIAM MANGER 

Mr. MANGER. Thank you, Chairman Kelly and Brat, and Ranking Member Adams and Evans, for the opportunity to testify before 

you today. I appreciate that this Committee has various champions 

of the Microloan program, and I know that today’s hearing will 

focus us on how to make the program function and operate better. 

To do that, we need to take a hard look at the past and present 

IG recommendations. And in my capacity as the head of SBA’s Office of Capital Access, I recognize that I need to drive those 

changes home. I view the IG report as a road map on how to 

strengthen and improve a program that many of you care so 

strongly about. We have a shared goal in wanting to spur economic 

investment and business opportunity in communities throughout 

this country. The IG report, through pointing out areas where SBA 

needs to do better, will enable us to further enhance our lending. 

To illustrate the reach of our Microloan program, I wanted to share 

some data. In fiscal year 2017, the intermediaries in SBA’s 

Microloan program lent $64 million to over 4,700 businesses that 

were unable to get credit elsewhere. The average loan amount was 

close to $14,000. The number of jobs created or retained was close 

to 18,000. 

Those figures tell us we are on track, but further analysis also 

tells us we are being successful in reaching communities. In fiscal 

year 2017, microloans were only 4 percent of the SBA’s total loan 

portfolio, but a full 40 percent of those loans went to startups, and 

30 percent of microloans go to businesses in rural areas. This represents greater penetration than our other SBA loan programs. 

Finally, all small business owners that receive a Microloan from 

SBA receive technical assistance, which is critical for business survival. In fact, businesses that receive technical assistance are three 

times more likely to stay in business past year one than those that 

do not receive technical assistance. 

Mr. Chairman, this data shows us that we are on the right path. 

It affirms the members’ interest apparent on this Committee and 

also the geographic reach to lending communities. 

So the question is—how do we do better? The IG report makes 

specific recommendations that we agree with. First, our data system is 25 years old, and desperately needs to be upgraded. When 

I came into my position in March, this was one of the first things 

I identified. We have now funded a review of the system which will 

lead to a specific recommendation for an upgrade in conjunction 

with Maria Roat, our Chief Information Officer at SBA. I want us 

to get a new system in place as soon as possible. 

Second, our SOP is currently being updated to provide better direction and guidance to both SBA staff and our intermediaries. We 

are in the process of creating a more thorough, on-site review plan 

of intermediaries, and we will continue training our SBA staff in 

the field and in headquarters to provide them better direction on 

their engagement with our intermediaries. Compliance is of utmost 

importance to maintain the integrity of the Microloan program. 

This program does so much. 

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Let me share one entrepreneur’s success story with you. John 

Palmer of Gardena, California, is an African-American disabled 

veteran who wanted to start a security business when he left the 

Army. He started Servexo, but after 3 years, needed capital to take 

a bold leap into a municipal contract. Because of extended credit, 

John could not secure traditional financing to grow his business. 

He went to a Small Business Development Center and was referred 

to a microlender, CDC Small Business Finance in California. They 

provided John with a $40,000 microloan that allowed him to staff 

a new contract and purchase new employee uniforms. John also received technical assistance related to financial literacy. This led 

him to bill weekly instead of biweekly, which greatly improved his 

cash flow. 

This is one success story, but there many, many others. Lastly, 

I want to speak to a portion of the IG report that observes the necessity for better program integrity in view of legislation to bolster 

the Microloan program. 

We were pleased to work with the Committee on the Microloan 

bill that passed out of Committee and brought forward to the full 

House in July. We appreciate the continued interest and support 

of the program. And you have my commitment that we will make 

the changes necessary to achieve continued success. Thank you, 

Mr. Chairman. I look forward to your questions. 

Chairman KELLY. And I thank both of you witnesses for being 

here. I thank the ranking member for being here as part of this 

to have this important hearing. It matters to me that 30 percent 

of the people who are financed are from rural areas. That is the 

type of area that I represent. It matters to me that these loans go 

to the people who need them most, which are our veterans and minorities in areas, whether it is for startup or whether it is for continuing and growing that business, that is very, very important. 

Mr. Manger, you have got a road map. I mean, the Office of Inspector General told you exactly what you need to do to do this 

thing right. And so, my hope is that the SBA will follow to the T 

those recommendations, or either dispute with this Committee, or 

the Office of Inspector General, what they don’t agree with there. 

But otherwise, I think you have a road map to get this program 

right so that we make sure the right people are getting that. In 

your recent audit, Mr. Ware, your office found that the SBA did not 

implement all the recommendations from the 2009 audit. Specifically, which recommendations did they not implement? 

Mr. WARE. It is important to note that they definitely made attempts to implement the recommendation. We are saying they 

didn’t effectively implement three of them. And the first one was 

recommendation 3 that dealt with actually going out and validating 

and verifying the data that is being reported by the intermediaries. 

So one of the ways that we asked them to do that was to bolster 

up their site visits, to get out there and back-check these things to 

see if the information is actually accurate. And when we looked, we 

found that more than half of the files that our auditors reviewed 

showed that the information had disparities. It just wasn’t accurate. So we dug into the site visits and found that they didn’t necessarily have a site visit plan in place that would ensure that all 

the intermediaries were covered, number one, or that it was in any 

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kind of scheduled manner to ensure that there is continuity. So we 

asked them to shore that up. 

So that was the first one. And then recommendations 5 and 6 

both had to do with performance measures. So we know, and Mr. 

Manger and I spoke about the way that SBA does a lot of their performance measure, and it is more output-based than outcomebased. And we are asking to have a greater lens into outcomebased performance measures. So that could be done through their 

IT system as well. 

Like Mr. Manger said, it is very old. It is missing fields. There 

are just certain things that could be placed in there, because some 

of the data, quite honestly, is readily available. It is right there. It 

is just not being rolled up in any way that they could have a 

programwide view of the program to make program-wide-type decisions. 

Chairman KELLY. And thank you. And just as an old soldier 

and old commander, I know that, number one, we don’t do well, 

those things that aren’t measured. And so you have to have performance measures or something to measure against. And we also 

don’t do well those things that aren’t inspected. And inspected 

doesn’t mean online. The things we follow up on and show the importance by visiting are the things that people do well. If you don’t 

show up, they assume that you really didn’t mean that they were 

important. Was your office surprised to learn, Mr. Ware, that they 

have not implemented the things that you had asked? 

Mr. WARE. I got to tell you, we were a little surprised that technical capabilities were not in place, mainly because we thought 

they were, quite honestly. After the 2009 one, we were provided 

with screenshots and with everything. And they had a contract in 

place to make these improvements. We actually thought they were 

done, but the contract, we found out later, fell apart, and that 

project went way. 

Chairman KELLY. Mr. Manger, now, how will SBA make sure 

that it actually implements these recommendations under your 

leadership? 

Mr. MANGER. Well, I am here to, again, drive this home. And 

I will ensure that the office and the staff in my office, we will pay 

very, very close attention to the IG report, the road map, as you 

said, sir. And we are going to implement it. We have already taken 

steps actually to implement some of the recommendations in the 

report by the IG. As we mentioned, we are actually funding now 

an evaluation with our Office of the Chief Information Officer, 

Maria Roat, to identify what is the best system to capture all of 

the information that we need to capture. And as Mr. Ware said, we 

want to capture, again, not just outputs, but outcomes. And we are 

going to do a whole new system to replace the 25-year old system, 

and we are going to try and do that, as I said, as soon as possible. 

We also have taken steps to change the language in the SOP. My 

office has already started to work on that. Again, with Mr. Ware 

and the inspector general’s recommendations, we are changing the 

language in the SOP to make it clear and readily identifiable by 

the lending intermediaries, our staff, field staff, so everyone knows 

what is necessary to be in compliance. 

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Chairman KELLY. Okay. And I am going to go just a little over, 

but I will tell you, it goes back to we measure—we do well what 

people measure. You need to have timelines, if you don’t, of when 

these things are going to be completed. If you do not have timelines 

and it is just when we get to it, people will not complete it. And 

with that, I have overextended my time, and I yield to the ranking 

member, Ms. Adams. 

Ms. ADAMS. Thank you, Mr. Chair, and thank you, gentlemen, 

for your testimony. 

Mr. Ware, in fiscal year 2016, the Microloan program was responsible for the creation of nearly 18,000 jobs. 47 percent of 

microloans went to minority entrepreneurs, and 45 percent of borrowers were women entrepreneurs. To what extent should factors 

such as job creation and borrower type be included as measures of 

the program’s success? 

Mr. WARE. That is a good question, actually. Actually, our office 

believes that that is at the crux of what should be measured, because if we want to know for certain that the program is meeting 

its intended purpose, those are exactly the type of performance 

measures that are more outcome-based that we have been discussing with the Small Business Administration. 

Ms. ADAMS. Right. I understand that intermediaries may utilize 

the Microloan program and the Community Advantage program simultaneously for one small business borrower. So with your recommendation on data collection in mind, can you elaborate on how 

SBA can ensure that its programs, particularly when being combined, can each meet their intended purposes? 

Mr. WARE. That was one of the things we found in the report 

that might—was not being tracked in a way that could roll out 

programwide to determine what is the impact of having the programs combined, what is really going on, because those programs 

we found during the audit that sometimes they combined, and it 

causes more—higher fee to the borrower and things like that. 

So the intermediaries were saying that we are doing this to make 

it easier for the lender, which might be the case if you look at it 

from their standpoint. But we also think that, Hey, this is also adding a different cost to the borrower. But we still believe that SBA 

needs to be better—have better oversight over that, especially 

when you are combining the programs. 

Ms. ADAMS. Okay. Thank you. Mr. Manger, SBA has promoted 

creating a continuum of access to capital. The OIG report noted 

that some intermediaries were not reporting whether small businesses were still in operation. What measures are in place to track 

the development of small businesses in the Microloan program such 

that they could avail themselves, if eligible, to additional SBA 

loans? 

Mr. MANGER. Thank you very much. We are putting in place 

identifiable markers so that we can track someone who receives a 

small business loan through a microlender. In fact, we have done 

some analysis already since I came aboard in March, and we are 

able to tell you that over 8 percent of those that received a 

microloan through the SBA have come back and received a larger 

loan through one of our other loan programs. So we do have hard 

evidence that shows the continuum, and we would like, again, to 

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have people eventually not even need the SBA, we would like them 

to be able to get loans conventionally. That is our ultimate goal. 

And we are working towards that goal. 

But we need to—and you are correct and the inspector general 

is correct—we need to have identifiable markers to be able to track 

businesses into the future. With the 504 program, as you may 

know, we do track at least 2 years of the continued job creation by 

that business. We need to do that and even more with the microlender program so that it is the strongest program that we can 

have. 

Ms. ADAMS. Yeah. Thank you. So to what extent do you attribute the discrepancies that the OIG found between the data in 

SBA’s information system and the data in the intermediary loan 

files? 

Mr. MANGER. So a lot of that can be explained, and we did talk 

to the IG about this. A lot of that can be explained by the fact that 

much of the information that is initially recorded is done in the application. What really should be looked at is the credit memo that 

follows the application, the credit memo and then the information 

that is in the system is actually consistent. Sometimes someone 

puts in an application that they are going to create four jobs. And 

then when they talk further and they get more technical assistance, they say, actually, it is going to end up being three jobs. And 

then when we do the final loan disbursement or the lending intermediary does that, it shows that there were three jobs created. So 

it is consistent with the credit memo. It is not always consistent 

with the application. And we did point this out to the OIG. 

Ms. ADAMS. So consistency and coordination, then? 

Mr. MANGER. Correct. 

Ms. ADAMS. Very good. Thank you, sir. Yield back, Mr. Chair. 

Chairman KELLY. Thank you, Ms. Adams. And I now yield to 

Mr. Brat. 

Mr. BRAT. Thank you all for being with us today. I just have a 

question in terms of the Office of Inspector General. I think you 

have done us a good service in, first of all, checking into programs, 

making their—serving our interests, and et cetera. But most of 

what I saw and the types of metrics you put in place just kind of 

assure at the managerial type of level that the program will be implemented in a good way. 

And beyond that—I mean, what we are really concerned about 

is that small business loans are being administered to people and 

they are having some effect as well. And so, if you could both just 

say a word on that, right? I mean, you have given us some good 

examples. I am not critical. I want these loans; I want economic 

growth. I taught economics for 20 years, so it is all good, right? I 

love it. But the anecdotal stuff doesn’t cut it for me. And even if 

you got a metric. You said, I think, you know, we got, you said, 

tech assistance. And the firms that take that have three times the 

survival. That could just be casual correlation, right? It could be 

that the bigger firms that survive have access to, you know, midlevel managers or as one manager, that can take advantage of assistance where the small guy can’t. 

I mean, we want to see kind of real evidence, right? Not just, 

Hey, we think, you know, three times this, and they are better over 

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here. You know, is that a fluke? I mean, if you run a regression 

and you control for some things, right? Like, my daughter is in 

high school doing this stuff with a control group, right? I mean, do 

we have some assurance that these programs are bearing fruit in 

terms of economic growth and helping business? And I would like 

to see that in the report as well. Just yield to hear your response. 

Mr. MANGER. So as I mentioned, the microloans that were 

made last year, we have on record that they created 18,000 jobs. 

If you look at our statistics based on different groups, we outperform every group with this program as opposed to our other 

SBA lending programs. For example, the percentages of loans in 

this program that went to African-Americans this past year was almost 33 percent. That is a third. That is a much higher number 

than with our other SBA lending programs. The numbers for the 

last 5 years, the loans to Hispanics was over 21 percent, and to 

women it was almost half. 

We are reaching people that we do not reach with our other programs. The lending intermediaries are on the ground in communities—in rural communities, making those loans, a lot of the times 

with a high-touch character rationale. And they are making loans 

to people who would not—I mean, case after case, they have said 

we cannot get the money. They have gone back repeatedly to banks 

and cannot get loans. 

This program provides them that access to capital. They do not 

have to max out credit cards. They are not going to an online lender that is going to charge huge interest rates to them. Our interest 

rates are reasonable. This program is successful. And we just want 

to strengthen it and make sure that it is doing the right thing for 

the American people. 

Mr. WARE. What you are saying is part of what we are driving 

at. And SBA, I think in 2011, after that 2009 report, they got with 

the consultant. And I am drawing a blank. I was sitting here trying 

my best to come up with that consultant that I knew right up until 

I sat in this seat a second ago. And that consultant had some of 

the same concerns and put forth some recommendations that were 

very much in line with what we had done. 

But one of the things they put out there is they were talking 

about getting to a performance metric that deals with overall impact, absent some of the things that you mentioned like, well, did 

those that were successful have access to the other programs. It 

was Aspen Institute. Thank you. I am here, like, the Archer Institute? Okay. The Aspen Institute. And one of the things they recommended, and I believe that at the time, SBA thought it was expensive, was that you actually speak to the people who are benefiting from the program to find out if it is actually working. Why 

were you successful? And that way you could dig in much deeper 

into determining, wait, is this—are you isolated in this instance because you had a little bit more charisma, or was it because of this 

and that? So I still think that that Aspen Institute study had a lot 

of merit. I am not sure if you saw it. But it has a lot of merit, and 

that was one of their recommendations. 

Mr. BRAT. Thank you. 

Chairman KELLY. I would like to thank and recognize the chairman of the full Committee, Chairman Chabot from Ohio, for—he 

SBREP-219A with DISTILLER

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is in now. And with that being said, I recognize Mr. Evans for 5 

minutes. 

Mr. EVANS. Thank you, Mr. Chairman. 

Mr. Manger, I want to go back to something you said when you 

talked about the shared goals. And I want to go back to the part 

about what is application on jobs and actually what happens. I 

think I heard you say sometime when people apply on paper, they 

may have a number of 6, but when it actually comes up to 3. You 

sort of said that, right? 

Mr. MANGER. Yes. There are many times when the application 

does not have the same information that is then contained in the 

credit memo which is used, actually, just before the loan is funded. 

Mr. EVANS. Correct. And what I guess I am trying to understand, the actual number you have is 18,000 jobs that you said 

have been created from this particular program, is what you have 

said. 

Mr. MANGER. That is correct, in fiscal year 2017. 

Mr. EVANS. Right. So in other words, what I see, one is sort of 

like the projected and actual. That is what I am hearing you say? 

Mr. MANGER. Yeah. That number is the number that was captured by the intermediaries that was put into our system. 

Mr. EVANS. So it is the actual—— 

Mr. MANGER. That is the actual. 

Mr. EVANS.—versus what was projected? 

Mr. MANGER. Yes. I mean, what was in the application is not 

captured here. This is actual—— 

Mr. EVANS. But it could have been higher? 

Mr. MANGER. It could have been, that is correct. 

Mr. EVANS. It could have been higher. Right. So what I want 

you to do is could you walk us through the process of applying for 

a microloan? I want to just understand how that process works. 

Mr. MANGER. Sure. Well, in the instance that I gave you, a 

small business entrepreneur was referred to a microlender. Microlenders are—we have 150 that are using our program today, approximately. They go into the microlender. The microlender sits 

down with them. And then, as you know, Congressman, a very important component of receiving one of these loans is the technical 

assistance. They must, as of today, get 25 percent of the technical 

assistance up front before they receive the loan. And it is many 

times when they are sitting down with the lending intermediary 

who is going to make the loan to them, that they understand what 

is necessary to have a sound business plan, and what it is going 

to take for them to be able to fund that loan, and then operate once 

they receive that loan. 

So a lot of the information, again, you know, on the initial application then is different. But then the lending intermediary sits 

down with the potential borrower, puts together a credit memo. 

They then—the intermediary funds the loan with the money that 

is loaned to them through the SBA. The lending intermediary 

makes that loan. And they have, on average, 3 years to repay that 

loan. But the SBA allows them, in fact, to repay that loan up to 

6 years. 

Then once that business is funded, as current statute requires, 

75 percent of the technical assistance must be applied again after 

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they receive the loan to make sure that the business is going to get 

up and running and growing as it is supposed to. 

Mr. EVANS. I need to do this so I can get through real quick. 

The question I am leading into is does the Office of Capital Access 

ever get funding and staffing? Because if you have done 18,000, I 

am just kind of curious, is there a need to be more staffing, rearrange a budget and—that could be many more job opportunities, 

businesses grow? 

Mr. MANGER. No. Honestly, I think our office is really adequately staffed for the amount of lending that we are doing. Again, 

we are making a loan to the 150 microlenders that are out there. 

It is the microlenders, who then, in turn, make the loans to the 

small business entrepreneurs. So we are not directly involved at 

the loan level to the small business owner. We are there working 

with the 150 microlenders that are in our program today. 

Mr. EVANS. One other thing I want to jump into. You said a 

shared goal that one day there wouldn’t be a need for SBA, a 

Microloan program. 

Mr. MANGER. I am saying that we would like to see small business owners grow a business so strong and become so economically 

viable that they do not need to come back and use the SBA; that 

they are able to access capital directly through the conventional 

marketplace. That is correct. 

Mr. EVANS. What is your sense on the percentage of companies 

that you are dealing with that are in that position that, in a sense, 

kind of grow out of needing the Microloan program? 

Mr. MANGER. You know, I don’t think I have an exact number 

for that. I could certainly get back to you on that. But we are addressing a need that is clearly evident out there for these small 

loans that are very impactful. And the lending intermediaries play 

a major role, again, in making sure that these businesses get the 

technical assistance they need and then the capital they need to 

start a strong business and we are hoping that all the businesses 

then become strong enough, again, that they graduate from the 

SBA. 

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

Chairman KELLY. The gentleman yields back. I now recognize 

Mr. Bacon for 5 minutes. 

Mr. BACON. Thank you, Mr. Chairman. And thank you gentlemen for coming back. Mr. Ware, if you could talk a little about site 

visits. I just want to make sure I understand what they are. If I 

interpret it right, it is the higher headquarters go out to visit 

smaller units? 

Mr. WARE. No. 

Mr. BACON. What are they? 

Mr. WARE. So the district offices actually go out to do the site 

visits where they are, to the intermediaries in those States. 

Mr. BACON. So what is the intermediary, then? 

Mr. WARE. An intermediary is who the SBA gives—well, they 

apply—they are their non-profits that apply to SBA to get the 

money necessary to make the loans to the—— 

Mr. BACON. So they actually do the loaning—the loans out? Got 

it. 

Mr. WARE. Yes. 

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Mr. BACON. Okay. So it is farther down the food chain than 

what I was thinking. 

So why is it important that SBA have a site visit plan and assemble the data from its visits? And is that directed from the top 

and tells the middle offices how to do it? 

Mr. WARE. Yes. Well, let me explain: So absent the plan, what 

happens, you have the district offices going out there, and they are 

doing site visits. But there is no overarching plan that says this is 

how we are supposed to do it. And then the information doesn’t roll 

up to the top to be able to have a programwide view as to what 

is being found in the site visits. 

So let’s say you find—if Wisconsin, I guess, is finding that one 

thing is happening that is regular, that is wrong all the time that 

they are doing, whether it is credit elsewhere, how to review it, or 

anything else, and it is being done that way also in Nevada, and 

it is being done in these other places. Right now the information 

is piecemeal from the site visits, and part of us being able to see 

that we have a problem in the program, that we probably need to 

put something in the system to address. 

Mr. BACON. So it is important that the folks at the top standardize the reporting processes, how you do it, and format it in a 

certain way so the data can be shared better? 

Mr. WARE. Right. Well, I think that, for the most part, that is 

being done. We are just asking them to make sure that they can 

have a programwide lens by having these folks roll up this information, and everybody be playing from the same playbook. 

Mr. BACON. Right. So it makes sense to me, because we did the 

same thing in the Air Force. We inspect, but we determine at the 

top how those inspections should look or those visits. So it is standardized. And you can take those lessons learned. My question to 

Mr. Manger, if I may, part of this audit, did your office have regular communications with the intermediaries? It sounds like you 

did, it just wasn’t standardized. 

Mr. MANGER. Yes, that is correct. And, actually, this gets to another point that is very important to note. You know, actually, several years ago, I was the Associate Administrator for Field Operations. Field Operations plays a big role in carrying out the site 

visits, because it is actually the staff in the district offices, as the 

inspector general just said, that actually carries out the site visits. 

So we have to be completely coordinated with the district offices. 

When I came back aboard the SBA in March of this year, I spoke 

to the Administrator and said we need to do some training with the 

field staff, specifically the lender relations specialist, to make sure 

they are doing what we need in headquarters for them to do in carrying out some of these site visits. 

In fact, in September, we had an on-site meeting with all the 

lender relations specialists from across the country for 2 days out 

near Dulles Airport, and we went over this with them. They now 

are on board and we are mandating annual site visits of every 

microlender in the program; they will be doing that. The staff in 

the headquarters office will also be following up with that. I think 

once we have that in place, we do have a checklist already; we can 

refine it a little bit further. But I think within, you know, this fisSBREP-219A with DISTILLER

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cal year, we are going to have a very good system in place to ensure that the site visits and the reporting is done effectively. 

Mr. BACON. Okay. Thank you. One last question for you, Mr. 

Manger. So you had the inspection results, 2017, from the inspector 

general. And you already said this, but I just want to verify, make 

sure I got it right. You found their findings on target, not overly 

cumbersome? Should be applied? 

Mr. MANGER. We agreed with their findings. I mean, honestly, 

the biggest problem is the 25-year-old system that we are working 

off of. That needs to be updated, without question. I identified that 

when I first came on board before I even knew the inspector general was looking at it. As I said, we have already funded a study 

with our Chief Information Officer to get the right system in place. 

We are hoping to do that as soon as possible, and we are working 

to that goal. I found out there were issues with the SOP and I immediately started working with our legal team to update the SOP. 

In terms of the site plan we have already done some training with 

the field staff. We are going to work on that. So we have adopted, 

really, the IG’s recommendations. We agree with them, and we are 

moving forward to make sure the integrity of the program is intact. 

Mr. BACON. Thank you very much to both of you. I yield back. 

Chairman KELLY. The gentleman yields back. I now yield 3 

minutes to Ms. Murphy. 

Mrs. MURPHY. Thank you, Mr. Chairman, for holding today’s 

hearing. I am very pleased to have worked with this Committee to 

pass H.R. 2056, the Microloan Modernization Act, in the House. It 

is an important bill that I think will help ensure the program 

keeps up with the increased demand for microlending. I also want 

to note that the bill recognizes the need for increased oversight by 

requiring GAO to conduct a thorough evaluation of the program. 

As we look to the potential Senate passage of the bill, this hearing comes at a particularly fortuitous time. My first question is for 

Mr. Manger. As you know, under current law, an intermediary can 

use no more than 25 percent of its Microloan technical assistance 

grant to provide preloan assistance, that is, assistance to perspective microloan borrower as opposed to an approved microloan borrower. 

Microloan intermediaries have long regarded the 25 percent cap 

as an arbitrary requirement that limits their ability to design support services that address the specific needs of borrowers and get 

more perspective borrowers loan-ready. Given these concerns, H.R. 

2056, as amended, would increase the cap to 50 percent. Could you 

provide your thoughts on the current 25/75 rule and the proposed 

change to 50/50? 

Mr. MANGER. Sure. We are in completely in favor of that 

change. And we want to also thank Congressman Bacon for his 

amendment. 

We think that it makes much more sense to lift some of those 

restrictions; the 25 percent restriction on the intermediaries for the 

up-front training. We also realize, and there is evidence to prove 

this, that loans are made and businesses are more successful when 

the up-front training is greater. And so we are in complete favor 

of increasing the up-front training prior to receipt of the loan; shifting to the 50/50 split, we think that is the right way to go. We apSBREP-219A with DISTILLER

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preciate the House for putting that forward and look forward working with the Senate to get that passed into law. 

Mrs. MURPHY. Great. Thank you. And one quick question. According to the agency’s fiscal year 2018 congressional budget justification, microlending has seen an increased demand, and the 

number of small businesses assisted by the program was up by 23 

percent in fiscal year 2016. Is the SBA prepared to meet the increased demand going forward? And what additional resources may 

be needed? 

Mr. MANGER. I think we are perfectly poised to address the 

need and the demand in 2018. In fact, if we get this system in 

place, we will be able to create greater efficiencies in our office, and 

I think we will be perfectly well-suited to address the increased demand. 

Mrs. MURPHY. Great. Thank you. And I yield back. 

Chairman KELLY. The gentlewoman yields back. I now recognize Mr. Blum for 3 minutes. 

Mr. BLUM. Thank you, Chairman Kelly, and thank you to the 

panelists for being here today I would also like to recognize the 

ranking member, Ms. Adams, who is standing up there, on her hat 

today. Very nice. Very nice. We are not here to question the effectiveness of the need for the Microloan programs. We are here to 

question the management by the SBA of these programs. Mr. Manger, how long have you been in your position? 

Mr. MANGER. Since March of this year. 

Mr. BLUM. Okay. I am reading here that the OIG did an audit. 

52 microloans. They did an audit, a statistical sample. I was on a 

bank audit committee, so I know enough about this to be dangerous. Twenty-seven loans are not matched the information included in the intermediary’s loan files. Thirty-two loan files did not 

have adequate evidence that the proceeds were used for the stated 

purpose, 32 of them. Twenty loans did not have adequate support 

that the borrower could not get credit elsewhere that is required. 

Thirteen loan files show that the intermediary charged interest 

rates above SBA requirements. And seven loan files show the intermediary charged fees above SBA requirements. 

Now, I know if the bank that I was on the board of got this type 

of audit information, we would be in serious trouble by the Federal 

Reserve. My question is, what happened to these intermediaries? 

What happens to these people when they do not follow our rules 

as stated by the OIG? Mr. Manger. 

Mr. MANGER. You raise a very good point, Congressman. Since 

I have come aboard, we have taken action. In the last 2 1/2 years, 

even longer than I have been there, we have the Ofice of Economic 

Opportunity, which oversees the Microloan program within my office working now very closely with my Office of Credit Risk Management. 

Mr. BLUM. What happens to these intermediaries? Are they terminated? 

Mr. MANGER. I will tell you, Congressman, we did actually just 

terminate a microlender—— 

Mr. BLUM. One? 

Mr. MANGER.—in the last 2 months. 

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Mr. BLUM. Clearly, there is—over 50 percent of the 52 analyzed 

had issues. 50 percent. One has been terminated? 

Mr. MANGER. Yes. But if you also look at the number of loans 

that were checked, that was less than 1 percent of the loans made 

by the Microloan program. 

Mr. BLUM. It is a statistical sample, though. You can’t tell me 

with any reasonable accuracy that 50 percent of them are not in 

error, of the total loan portfolio. So this is a statistical sample. 50 

percent or more were in error. These intermediaries should be terminated. 

Mr. MANGER. And as I said, we just terminated one, and I am 

working to look at doing that with another one. So I am taking action, sir, since I arrived in March. 

Mr. BLUM. And I have every confidence now in the SBA with 

Linda McMahon at the top of it. And you are new to your job, so 

I will give you the benefit of the doubt. But they need to be held 

accountable. 

Mr. MANGER. Absolutely. 

Mr. BLUM. I yield back my time. 

Chairman KELLY. The gentleman yields back. 

As this hearing comes to a close, I want to, again, thank both of 

our witnesses for their testimony today. The Microloan Program is 

important to this Committee and important to small businesses. 

For those reasons, we encourage the SBA to take heed of the OIG’s 

audit report and improve its oversight. Doing so will ensure the 

program fulfills its purpose. Going forward, we are eager to learn 

how SBA is implementing the OIG’s recommendations. The Committee expects to be updated on the progress SBA is making on the 

OIG’s recommendations. Thank you. I ask unanimous consent that 

members have 5 legislative days to submit statements and supporting materials for the record. 

Without objection, so ordered. We are adjourned. 

[Whereupon, at 2:49 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

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INTRODUCTION 

Chairman Kelly and Brat, Ranking Members Adams and Evans, 

and distinguished members of the Subcommittees, thank you for 

the opportunity to be here today and for your continued support of 

the Office of Inspector General (OIG). We recently published the results of our audit of the Small Business Administration’s (SBA’s) 

management of the Microloan Program. I am happy to discuss our 

findings with you today. 

OIG’S ROLE 

OIG was established within SBA by statute to promote economy, 

efficiency, and effectiveness and to deter and detect waste, fraud, 

abuse, and mismanagement in the Agency’s programs and operations. During fiscal year (FY) 2016, OIG achieved nearly $145 million in monetary recoveries and savings—an almost sevenfold return on investment relative to our FY 2016 operating budget—and 

made 81 recommendations for improving SBA’s operations and reducing fraud and unnecessary losses in the Agency’s programs. Already in FY 2017, through March 31, 2017, OIG achieved monetary 

recoveries and savings of over $22 million. 

OIG audits are conducted in accordance with Federal audit 

standards established by the Comptroller General, and other reviews generally are conducted in accordance with standards established by the Council of the Inspectors General on Integrity and Efficiency. In addition, we coordinate with the Government Accountability Office to avoid duplicating Federal audits. We also establish 

criteria to ensure that the non-Federal auditors that OIG uses 

(typically, certified public accountant firms) comply with Federal 

audit standards. 

OIG’S FINDINGS PERTAINING TO THE MICROLOAN 

PROGRAM 

OIG report 17-19, titled Audit of SBA’s Microloan Program, presents the results of our audit of SBA’s Microloan Program. The 

Microloan Program assists women, low-income, veteran, and minority entrepreneurs, as well as other small businesses in need of financial assistance. Under the program, SBA makes direct loans to 

intermediaries that, in turn, use the proceeds to make small shortterm loans (microloans) up to $50,000 to eligible small businesses. 

SBA also awards grants to intermediaries to provide training and 

technical assistance to microloan borrowers. From FYs 2014 to 

2016, intermediaries closed 12,168 microloans totaling approximately $170 million. 

Our objectives were to determine (1) whether SBA effectively implemented actions to improve oversight of the Microloan Program 

and (2) the extent that SBA oversight is sufficient to measure program performance and ensure program integrity. 

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1 ROM 10-10, SBA’s Administration of the Microloan Program under the Recovery Act 

What OIG Found 

OIG last conducted an audit of SBA’s Microloan Program in 2009 

and made several recommendations to SBA to improve its program 

oversight.1 However, SBA management did not effectively implement all prior audit recommendations to improve oversight. Furthermore, SBA management did not conduct adequate program 

oversight to measure program performance and ensure program integrity. These internal control weaknesses were due to SBA not 

having an overall site visit plan, an adequate information system, 

available funding for system improvements, or clear Standard Operating Procedures (SOPs). Additionally, SBA management focused 

on output-based performance measures instead of outcome measures. 

In our review of a statistical sample of 52 microloan files, we 

found that data contained in SBA’s information system for 27 of 

the loans did not match the information included in the intermediaries’ loan files. In addition, we found that intermediaries did 

not have sufficient documentation to support that it originated and 

closed 44 of the 52 microloans, or 85 percent, totaling approximately $910,000, in accordance with SBA’s requirements. These deficiencies affect the reliability of the data reported to SBA by the 

intermediaries. When projecting these findings to the microloan 

population, we estimated that intermediaries did not have adequate documentation for at least 9,196 microloans approved from 

FY 2014 to FY 2016 for approximately $137 million. 

As a result, SBA’s ability to validate microloan data, conduct 

analyses across multiple programs and systems, and capture outcome-based measures was impaired, and there was no way to ensure program integrity or measure program success. These internal 

controls over the Microloan Program are critical as Congress considers expanding the program. 

It is important to note that during the period of the current 

audit, SBA took steps to improve its oversight of the Microloan 

Program. Those steps included the following: 

• Developed a justification to request funds for technology 

improvements. 

• Conducted a time study to evaluate staff time spent on 

tasks in support of technology improvements. 

• Developed a module within the program information system for new loan request analysis which replaced the use of 

spreadsheets. 

OIG Recommendations 

To improve SBA’s oversight of the Microloan Program, we recommended the Associate Administrator for the Office of Capital Access (1) continue efforts to improve the information system for effective monitoring of the Microloan Program, (2) develop a site visit 

plan to further monitor microloan portfolio performance, (3) update 

SOP 52 00A to clarify requirements regarding evidence for use of 

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proceeds and credit elsewhere, and (4) update the microloan reporting system manual to reflect current technology capabilities. 

Agency Response 

SBA management agreed with the four recommendations offered 

by OIG. Specifically, SBA plans to study and recommend solutions 

to replace its microloan information system. SBA also will develop 

a comprehensive site visit review program and will update SOP 52 

00A to clarify requirements regarding evidence for use of proceeds 

and credit elsewhere. Additionally, SBA will update the microloan 

reporting system user’s manual to reflect current technology capabilities. 

CONCLUSION 

The Microloan Program’s mission is to integrate microlevel financing with training and technical assistance for start-up, newly 

established, existing, and growing small businesses. Improvements 

are needed in SBA’s oversight to validate microloan data, conduct 

analyses across multiple programs and systems, and capture outcome-based measures. Furthermore, because Congress introduced 

two bills to expand the program, adequate oversight is necessary 

to sufficiently measure program performance and ensure the integrity of the program. The exceptions we identified on the microloans 

demonstrate that SBA must continue to improve its oversight to 

ensure the program is meeting its intended purpose. When projecting our findings in the 44 microloans to the microloan population, we estimate that at least 9,196 of 12,157 microloans, totaling $137 million, had deficiencies. 

I am proud of the work performed by our auditors to shine the 

light on the Microloan Program, appreciating it is timely in context 

of the congressional debate to expand participation in the program. 

As noted in the Congressional Research Service’s report titled 

Small Business Administration 7(a) Loan Guaranty Program, dated 

September 15, 2017, inadequate performance metrics are a persisting concern with SBA’s lending programs. OIG believes the recommendations offered in this report will strengthen the management of the Microloan Program and ultimately, facilitate a capacity 

and analyze date in a manner that SBA can effectively measure 

performance of the program. 

OIG will continue to provide independent, objective oversight to 

improve the integrity, accountability, and performance of the SBA 

and its programs for the benefit of the American people. Our focus 

is to keep SBA leadership, our congressional stakeholders, and the 

public currently and fully informed about the problems and deficiencies in the programs as identified through our work. We value 

our relationship with these Subcommittees, the Committee on 

Small Business, and the Congress at large, and we look forward to 

working together to address identified risks and the most pressing 

management challenges facing SBA. 

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Thank you Chairman Kelly, Ranking Member Adams, and the 

entire Subcommittee for the opportunity to testify before you today. 

It’s great to be back here once again and to have the ability to 

speak with you further about the Office of Capital Access’ 

Microloan Program. 

I am grateful for the dialogue that we’ve seen between the Office 

of Capital Access and the members of this Committee and your 

staff. It is incredibly important to the SBA and the American taxpayer that all of our lending programs are running as efficiency 

and effectively as possible. In that pursuit, we always value the 

feedback and input of this Committee when it comes to helping entrepreneurs access capital across our great country. We also appreciate the role the Office of Inspector General plays in ensuring that 

programs are successfully managed. 

Administrator McMahon and the Office of Capital Access are 

very focused on providing smaller dollar loans to small business 

borrowers. Under Administrator McMahon’s leadership, there has 

been responsible growth in all of our lending programs this year, 

including our Microloan Program. Administrator McMahon understands the importance of these loans and the life changing impact 

they can have for so many of our nation’s entrepreneurs and their 

communities. The SBA’s Microloan Program offers small dollar 

loans to businesses that banks are simply unable to make. As we’ve 

seen for years, the program has been incredibly successful in filling 

a need. For example, in Fiscal Year 2017, the Microloan Program 

provided small dollar loans with a reasonable interest rate to 4,708 

small businesses. 

As the Associate Administrator of the SBA’s Office of Capital Access, I am one hundred percent committed to upholding the integrity of all of our loan programs and making sure that they are run 

properly with maximum accountability to this Committee and the 

American people. We do believe the Microloan Program is being administered appropriately, but there is of course always room for improvement. 

As many of you know, in this program the SBA makes loans to 

not-for-profit lending intermediaries who then make microloans to 

small businesses for up to $50,000. However, the program has an 

average loan size of just $13,800. Year-over-year, we have seen a 

5% increase in these loans which have created and/or retained an 

estimated 17,500 American jobs. Another interesting fact is that 

over 8% of our microloan recipients have gone on to receive larger 

loans from the SBA. This is incredibly encouraging and we would 

definitely like to see this number continue to increase. 

In the coming weeks the Office of Capital Access will also be implementing new collaborative efforts with our Office of Field Operations to increase the number of these loans in both inner cities 

and rural areas. We view this initiative and others such as the recent launch of our Lender Match program as valuable tools in providing access to capital for entrepreneurs looking to attain the 

American dream. 

It is incredibly encouraging to see the impact that the Microloan 

Program has had for so many American small business owners. 

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This program is a way for aspiring and existing small business 

owners to access capital at a reasonable rate, especially when you 

compare it to maxing out multiple credit cards at much higher interest rates. I’d also like to note that historically the Microloan Program has had a less than 2% loss rate. Keeping that number as 

low as possible is incredibly important for us at the SBA. 

In regards to the recent Inspector General’s audit of the 

Microloan Program, the SBA has agreed to implement the recommendations and has already begun working on enhancements to 

its on-site reviews by district office staff. We are also working on 

a project to evaluate system alternatives to modernize our 

Microloan lending and reporting system. 

Lastly, the Office of Capital Access is committed to providing enhanced training to our lending intermediaries and the Office of 

Economic Opportunity has already provided two webinar trainings 

on how to properly document the ‘‘credit elsewhere’’ test. The SBA 

is committed to implementing the suggestions put forth in the Inspector General’s most recent audit. We believe we are well on our 

way to improving our program and making it that much better for 

our nation’s small business owners and the American taxpayers. 

Thank you again for this opportunity to discuss the Microloan 

Program and I look forward to answering any questions you may 

have. 

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SBREP-219A with DISTILLER


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30 

SBREP-219A with DISTILLER


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31 

SBREP-219A with DISTILLER


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32 

SBREP-219A with DISTILLER


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33 

SBREP-219A with DISTILLER


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34 

SBREP-219A with DISTILLER


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35 

SBREP-219A with DISTILLER


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36 

SBREP-219A with DISTILLER


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37 

SBREP-219A with DISTILLER


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38 

SBREP-219A with DISTILLER


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39 

SBREP-219A with DISTILLER


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40 

SBREP-219A with DISTILLER


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41 

SBREP-219A with DISTILLER


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42 

SBREP-219A with DISTILLER


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43 

SBREP-219A with DISTILLER


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44 

SBREP-219A with DISTILLER


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45 

SBREP-219A with DISTILLER


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46 

Æ 

SBREP-219A with DISTILLER


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