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51–034 PDF 2009

SUBCOMMITTEE ON FINANCE AND TAX 

HEARING ON LEGISLATIVE PROPOSALS 

TO REFORM THE SBA’S 

CAPITAL ACCESS PROGRAMS 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 23, 2009 

Small Business Committee Document Number 111-039 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

PARKER GRIFFITH, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEE 

Subcommittee on Finance and Tax 

KURT SCHRADER, Oregon, Chairman 

DENNIS MOORE, Kansas 

ANN KIRKPATRICK, Arizona 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

DEBORAH HALVORSON, Illinois 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

VERN BUCHANAN, Florida, Ranking 

STEVE KING, Iowa 

W. TODD AKIN, Missouri 

BLAINE LUETKEMEYER, Missouri 

MIKE COFFMAN, Colorado 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Schrader, Hon. Kurt ................................................................................................ 1 

Buchanan, Hon. Vern .............................................................................................. 2 

WITNESSES 

Humphreys, Mr. William, President & CEO, Citizens Bank, Corvalis, OR. 

On behalf of American Bankers Association ...................................................... 4 

Wayman, Ms. Carol, Senior Legislative Director, Corporation for Enterprise 

Development ......................................................................................................... 5 

Robson, Mr. Joe , President, The Robson Companies, Inc., Broken Arrow, 

OK. On Behalf of the National Association of Home Builders ......................... 7 

Finch, Ms. Zola, RMI CDC, Jefferson City, MO. On behalf of the National 

Association of Development Companies ............................................................. 8 

Swartzman, Mr. Steve, C3 Capital, Kansas City, MO. On behalf of National 

Association of Small Business Investment Companies ..................................... 10 

Ransone, M.D., Mr. Sterling, Deltaville, VA. On behalf of American Academy 

of Family Physicians ............................................................................................ 12 

APPENDIX 

Prepared Statements: 

Schrader, Hon. Kurt ................................................................................................ 29 

Buchanan, Hon. Vern .............................................................................................. 31 

Humphreys, Mr. William, President & CEO, Citizens Bank, Corvalis, OR. 

On behalf of American Bankers Association ...................................................... 33 

Wayman, Ms. Carol, Senior Legislative Director, Corporation for Enterprise 

Development ......................................................................................................... 41 

Robson, Mr. Joe , President, The Robson Companies, Inc., Broken Arrow, 

OK. On Behalf of the National Association of Home Builders ......................... 47 

Finch, Ms. Zola, RMI CDC, Jefferson City, MO. On behalf of the National 

Association of Development Companies ............................................................. 53 

Swartzman, Mr. Steve, C3 Capital, Kansas City, MO. On behalf of National 

Association of Small Business Investment Companies ..................................... 60 

Ransone, M.D., Mr. Sterling, Deltaville, VA. On behalf of American Academy 

of Family Physicians ............................................................................................ 68 

(V) 

(1) 

SUBCOMMITTEE ON FINANCE AND TAX 

HEARING ON LEGISLATIVE PROPOSALS 

TO REFORM THE SBA’S 

CAPITAL ACCESS PROGRAM 

Thursday, July 23, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC 

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

2360 Rayburn House Office Building, Hon. Kurt Schrader [chairman of the Subcommittee] presiding. 

Present: Representatives Schrader, Moore, Kirkpatrick, 

Halvorson, Buchanan, Luetkemeyer and Coffman. 

Also Present: Representative Ellsworth. 

Chairman SCHRADER. I now call the hearing to order for the Finance and Tax Subcommittee of the Small Business Committee. 

In the current environment, businesses everywhere in every industry face a common problem. They cannot access affordable capital. This means that entrepreneurs are looking to expand and hire 

more workers, cannot. It also means that small companies who 

want to borrow money to stay afloat are unable to secure credit. 

In previous downturns when credit dried up, the Small Business 

Administration’s lending programs helped filled in the gaps, providing firms the capital they need to drive the economy back towards prosperity. 

Unfortunately, in this recession, SBA’s Capital Access programs 

have been unable to fill their traditional role, leaving many small 

businesses with very few options. Small business’ capital challenges are not confined to the SBA lending programs. Commercial 

lending has been greatly restricted, and a recent Federal Reserve 

survey found that 69 percent of domestic lending institutions have 

tightened their lending standards on commercial and industrial 

loans. I’d argue it’s much higher than that. 

Equity capital is also falling off. Venture capital investments 

were cut in half during the spring, making the second quarter in 

a row with a decline of more than 50 percent. The American Recovery and Reinvestment Act, which the President signed into law in 

February, took important steps towards addressing some of the 

small business capital needs. By making loans less expensive for 

small business borrowers, and increasing government guarantees, 

this law will generate $20 billion in new lending authority. However, we are far from where we need to be. The number of 7A loans 

is down 50 percent compared to fiscal year 2008. Clearly, if we’re 

2 

going to meet the small business’ capital needs, much more needs 

to be done. 

Today, we have before us a set of proposals, all of them aimed 

at getting capital flowing to small businesses by modernizing SBA’s 

programs, and I look forward to the panel’s testimony on their 

value. As we discuss these proposals, we should keep three central 

goals in mind, in my opinion. First, we should work to broaden the 

range of options available to small businesses seeking capital. And 

SBA program that works for a family-owned business in Salem, Oregon may not be the right solution for a high-tech startup in Pittsburgh, or a manufacturer in Akron, Ohio. Our efforts must help all 

types of firms access capital, whether they choose to raise capital 

through micro loans, government guaranteed loans, or equity investments. 

Second, we need to make capital more affordable. Being able to 

find a small business lender is one thing, securing a loan at terms 

that work for the borrower are another. And, thirdly, we need to 

help small businesses recover after natural disasters. Hurricane 

Katrina and other catastrophes, even on my Pacific coast, have 

made clear there are deep and longstanding problems with the 

SBA’s disaster recovery initiatives. It is vital that we correct those 

problems. When disaster strikes, small businesses must have the 

resources they need to rebuild our communities, and help restore 

economic prosperity. 

The challenges facing the small business community were not 

created in a day. Indeed, many of the problems in SBA’s Access to 

Capital programs can be traced back to eight years of neglect and 

mismanagement. These issues will take time and patience to resolve, but one thing is clear, small firms are going to remain our 

country’s primary job creators. They need access to capital, and 

that will require strengthening and improving the programs here 

in the Small Business Administration. 

With that, I’ll recognize Ranking Member Mr. Buchanan for his 

opening statement. 

[The prepared statement of Chairman Schrader is included in 

the appendix.] 

Mr. BUCHANAN. Thank you, Mr. Chairman. I appreciate the opportunity, especially for holding this meeting today, looking for capital. 

I know as a person that I’m not a career politician. I’ve been in 

business, self-employed for 30 years. I’ve been very fortunate and 

blessed to live the American dream, created thousands of jobs. I 

was involved probably about five years ago as Chairman of the 

Florida Chamber, so I’ve seen it. And I can tell you there, I’ve 

never seen the environment, I remember going through the early 

‘80s with interest rates at 19, 20 percent. I remember the early 

‘90s, the S&L Bank crisis, but this is about one of the toughest crises that I’ve seen. And the main thing is, three years ago there was 

an abundance of credit. I mean, it just seemed like there was too 

much credit. There was credit everywhere, and I’ve been involved. 

I see the bankers here from 20 years on bank boards. 

Today, there’s very little or no credit. And I’d say probably pretty 

much no credit. I talked to a banker this past Friday who is town. 

He was asking me about having some trouble with his equity in his 

3 

bank, and we were just talking about it. And he’s very involved 

with all the bankers in our community. And I asked him, I said, 

‘‘Is there much credit or any credit?’’ If someone wants to borrow 

$1 million, real estate, he said, ‘‘Well, if they want to borrow $1 

million today, you’ve got to put up a $1 million CD.’’ I mean, that’s 

basically no credit. Talked to another banker on Friday where 

they’ve got a presence all across the southeast, 11 states. I mean, 

Sunday night actually, we were out a little boat cruise thing, and 

talking to her, and the same type of reality. 

Now, southeast might be tougher than some areas, but I know 

I’m in southwest Florida. I see the home builders here today. We’ve 

been devastated. I don’t know that we have maybe one or two 

homebuilders left, because a lot of them had been very profitable, 

very successful for a lot of years. There is no capital. Most of the 

loans are actually being called today. 

So, I look forward to working with the Chairman to see what we 

can do to draft some bills to get some capital flowing until the 

banks can get back on line. I know a lot of banks say they are still 

lending. There’s some lending out there. But, again, as I think back 

on Sunday night when I talked, I asked the banker, I said, ‘‘Are 

there any businesses in our community that are really making any 

money?’’ And she looked over at me, and she says, ‘‘I don’t know 

of any.’’ I mean, that’s pretty scary when you think about it. ‘08 

was tough. A lot of the people in ‘08, I’m in a small group of CEOs 

that we meet for the last 20 years, very successful over that period 

of time. And most of them lost—and we were sitting down, this is 

a pre-Christmas party meeting, lot of CEOs, big companies, billion 

dollars in sales type companies, and most of them lost a third of 

their net worth in ‘08 alone. When you look at—there was nowhere 

to hide. So, this is really impacting small business. 

The Florida Chamber, we had 137,000 businesses we represent 

in our federation. Ninety-nine percent of those businesses were 

small business, and they created 75 percent of the jobs in Florida. 

With no capital available to these small businesses, we’re going to 

have a record number of people that have either gone out, or are 

on the verge of going out. So, we really have—this is a serious 

problem. 

That’s why I challenge my friends in the administration. We 

really need to focus on the number one priority, getting our economy and jobs, helping working families. That’s where it needs to 

happen. To make that happen, we’ve got to have access to capital, 

small companies. 

So, I appreciate your time and effort for being here today. We’re 

looking for answers, and as I—many people that know me, this 

isn’t a Democrat or Republican thing. This is an American thing. 

We need to work together to figure out how to get out of this crisis. 

Thank you. 

[The prepared statement of Mr. Buchanan is included in the appendix.] 

Chairman SCHRADER. Do any of the other members have any 

opening statement they would like to make? 

All right. Seeing none, we’ll go to testimony from the witnesses. 

Just so everyone understands the rules of engagement here, you 

have five minutes to make your statement, so please summarize 

4 

your written remarks. A green light indicates go, yellow means 

you’ve got a minute, so be thinking of summarizing, and red means 

I’m going to have to stop you. I apologize for that in advance. 

So, our first witness will be Mr. William Humphreys. Mr. Humphreys is the President and CEO of Citizens Bank located in Corvallis, Oregon, a community bank with 150 employees. He is testifying today on behalf of the American Banker’s Association. ABA 

is a trade association for banks representing over 95 percent of the 

industry’s $13.6 trillion in assets, and employ over 2 million men 

and women. Welcome, Mr. Humphreys. 

STATEMENT OF WILLIAM HUMPHREYS 

Mr. HUMPHREYS. Chairman Schrader, Ranking Member Buchanan, and members of the Subcommittee, my name is Bill Humphreys, President and CEO of Citizens Bank, Corvallis, Oregon. 

Citizens Bank is a 52-year old community bank, which focuses on 

small business, lending to small businesses and farmers in 10 communities throughout Oregon’s Williamette Valley. 

The focus of this Committee is extremely important. Consistently, small businesses are drivers of new ideas, new employment, 

and new economic growth. For banks like mine, small businesses 

are our bread and butter. While some might think that the banking 

industry is composed of only large global banks, the vast majority 

of banks in our country are community banks, small businesses in 

their own right. In fact, over 3,400 banks, 41 percent of the total, 

have fewer than 30 employees. 

The efforts that we’ve made, that have been made by this Committee, the Congress as a whole, and the Administration to improve the environment and opportunity for small business through 

changes to the SBA program have been needed for many years. 

The SBA’s programs have struggled over the last few years, loan 

volumes fell by 30 percent last year, and continue to fall this year, 

as well. The economy is certainly playing a significant role in this 

decline. However, it’s also due to the SBA programs being too costly, and difficult for lenders and small businesses who wish to access the program. 

Chairwoman Vela ́zquez has introduced a legislative proposal, 

which ABA believes would make the SBA programs more effective. 

First, the legislation calls for establishment of a program within 

the SBA to assist with outreach to small lenders who are not participants in the SBA’s 7(a) program. This is vitally important. SBA 

lending is very specialized, and lending requires skilled personnel 

with expertise in SBA policies and procedures. Providing a dedicated outreach effort to these lenders, primarily community banks 

like mine will only increase lenders’ willingness to participate in 

the agency’s program. 

Second, the legislation seeks to make the Rural Lender Outreach 

Program, Community Express, and Patriot Express Programs permanent. This is laudable. Although, the SBA has fallen short in 

promotion and marketing programs. 

ABA has a number of recommendations we believe will help to 

expand the reach of the SBA programs amongst small businesses. 

First, Congress should extend provisions that expand both the 90 

percent guarantee and fee relief for an additional two years beyond 

5 

the 2010 expiration date. Both of these have provided much needed 

boost for lender participation in the programs. 

Second, the SBA should eliminate, or reduce, the restriction on 

refinancing. The restriction often prohibits the borrower from obtaining new financing that is critical to continued success of that 

business, and often causes the bank to write new loans without the 

help of the SBA, or to ask the borrower to seek help of another 

lender. 

Third, the SBA should improve the quality of the guarantee 

itself. As the current guarantee is only valid if certain conditions 

are strictly adhered to, the collateral assets, and often the business 

itself, must be liquidated prior to payment on the guarantee by the 

SBA. This process can be delayed by bankruptcy, by difficult repossession issues, and other factors. 

Fourth, the guarantee approval process should be improved. Generating the information and documentation required by the SBA is 

not easy for the lender. Many small banks have found it necessary 

to seek the help of a third-party packager, who would gather necessary data to gain approval, creating additional time and expense 

for the borrower. 

Finally, the human resources capacity of the SBA should be expanded in order to ensure adequate staff is available to implement 

from a market, and manage the many initiatives of the SBA. 

The American Bankers Association would be happy to work with 

this Subcommittee on these and other ways to improve the SBA. 

And I’d be happy to answer any questions. Thank you. 

[The prepared statement of Mr. Humphreys is included in the 

appendix.] 

Chairman SCHRADER. Thank you very much, Mr. Humphreys. 

Thanks for coming from so far away. 

Mr. HUMPHREYS. Thank you. Thanks for having me. 

Chairman SCHRADER. The next witness is Ms. Carol Wayman. 

She’s the Senior Legislative Director of the Corporation for Enterprise Development, the CED is a leading non-profit association 

dedicated to expanding economic opportunity, helping Americans 

start and grow their businesses. Welcome. 

STATEMENT OF CAROL WAYMAN 

Ms. WAYMAN. Thank you, Chairman Schrader, and thank you, 

Ranking Member Buchanan, and members of the Subcommittee. 

It’s an honor to testify today in support of the Small Business Administration’s Microloan program. We’d like to thank Chairwoman 

Vela ́zquez and the Administration for support for the SBA 

Microloan program, and making it a priority, and helping to improve the economy, and create jobs. 

CFED knows that self-employment can build wealth for low-income and minority families, and we strongly support the SBA 

Microloan program, which provides capital, training, and technical 

assistance to disadvantaged entrepreneurs. Since its authorization 

in 1991, this program has continued to receive bipartisan support, 

and we believe that the draft legislation under discussion provides 

an excellent opportunity to strengthen a program that reduces poverty, and creates jobs. 

6 

I have five more points to make on the legislative proposal. First, 

we are pleased to see that the Subcommittee has included language 

that allows Microloan Intermediaries to offer more flexible credit 

terms, such as lines of credit. 

Second, we welcome language that expands eligibility requirements for prospective Microloan Intermediaries. We agree with the 

Subcommittee that SBA should have the discretion to determine 

the type of experience necessary to become an Intermediary. 

Third, we are pleased to see the Subcommittee recommend increases on the cap on borrowing by Intermediaries. Many of the 

highest performing Intermediaries in the Microloan program have 

reached that $3.5 million limit, and more businesses are coming 

back to them for loans, and they can’t make loans that they’d like 

to make. So, the recommendation to increase it to $10 million is 

something we strongly support. 

Fourth, we are pleased to see an increase in the maximum loan amount that an Intermediary can make to a borrower from $3,500 

to $50,000. We think this increase reflects the key market reality, 

the investor return on a $50,000 loan is frequently deemed too low 

for most mainstream financial institutions. I note, however, that 

the majority of Microloans remain small, at about $13,000. 

Lastly, we support the proposal to increase the percentage of 

technical assistance grants that may be used for providing information and technical assistance to prospective borrowers. We also support the proposed increase in percentage that Microloan Intermediaries can use for third-party technical assistance. 

In this economy, Microloan Intermediaries need flexibility to 

serve future entrepreneurs, instead of the current restriction to 

provide technical assistance mainly to current borrowers. 

We also recommend the Subcommittee consider the following 

four changes to the Microloan program as part of any final legislation. 

First, we’d like to lower our remove the loan loss reserve requirement. Intermediaries in the SBA Microloan program must maintain a 15 percent loan loss reserve fund that really results in unnecessary levels of passive capital. The SBA Microloan program 

has made loans that no bank would dare take on; and, yet, has the 

lowest default rate of any SBA lending program. 

While SBA regulations allow this requirement to be lowered to 

10 percent, the Microloan program is the only SBA lending program that requires a loan loss reserve fund. And this limitation 

forces the SBA to limit its best performing program. 

Second, we would allow the use of one-time use of SBA Microloan 

funds for Microloan Intermediary capital improvement projects. 

This enables these high volumes Intermediaries to expand and improve their facilities to meet increased demand. 

Third, we recommend eliminating the requirement that Intermediaries cannot operate in more than one state without prior and 

burdensome approval. Permitting multi-state use of Microloan 

funds will facilitate regional economic development. 

And, finally, we’d like to expand SBA reporting requirements. 

Unfortunately, SBA provides very little information on the 

Microloan program. Without data, it is very difficult for the Microenterprise field to target areas for improvement, and efficiency. 

7 

Ideally, we would like to see annual SBA reporting requirements, 

such as loans made, loan dollar volume per Intermediary, credits 

for improvements, and jobs created. 

In closing, we would like to thank the Subcommittee once again 

for the opportunity to testify today, and we look forward to 

partnering with Congress, and the Administration to enable low-income entrepreneurs, who are ready to go from business curious, to 

business capable. Mr. Chair. 

[The prepared statement of Ms. Wayman is included in the appendix.] 

Chairman SCHRADER. Very good. Thank you very much. Your expertise is appreciated. 

Our next witness is Mr. Joe Robson from the Robson Companies, 

Incorporated located in Broken Arrow, Oklahoma. A builder of residential and commercial properties, Mr. Robson is testifying on behalf of the National Association of Home Builders, which has represented more than 800 state and local homebuilder associations 

since its founding in 1972, and perhaps you can say bearing the 

brunt of our current crisis. Welcome, sir. 

STATEMENT OF JOE ROBSON 

Mr. ROBSON. Thank you very much. That’s 1942, so - 

Chairman SCHRADER. Oh, excuse me. I apologize. 

Mr. ROBSON. It maybe a typo. But, thank you, Mr. Chairman. 

Since the onset of the economic downturn, Congress and the Administration have taken several important steps to respond to the 

crisis. Our members certainly appreciate those efforts. However, 

the crisis wears on, and more resources are needed. 

We welcome the opportunity to comment on how to potentially 

expand the role of the Small Business Administration and its Capital Access programs to help struggling small businesses, including 

homebuilders. 

The current housing recession is the worst since World War II. 

Housing starts are down 80 percent since January of 2006, and virtually every housing indicator reached an all-time low in the last 

two quarters. Glimmers of hope, however, suggest that the three 

plus year decline in housing may have stabilized. These buds of 

growth notwithstanding, a number of specific headwinds will continue to buffet any significant housing recovery. The strongest of 

these include excess inventory of vacant homes and apartments, 

foreclosures that continue to feed this inventory, continuous downward price pressures from too much supply and not enough demand, tight mortgage underwriting and low appraisals, and extremely difficult financing terms and availability for builder acquisition development and construction loans, or AD&C loans. 

The data suggests that residential construction is now bounding 

along a bottom. We forecast that housing starts face a low slow, recovery that will take several years. NAHB forecasts 525,000 housing starts for 2009, and 650,000 for 2010. This is less than half of 

our forecast for long-term housing demand. 

Of the issues I mentioned, two stand out for their acute impact 

on home builders, low appraisals, and lack of financing for AD&C 

loans. My written statement explains in detail the key components 

of these issues, but suffice it to say that taken together, they are 

8 

placing enormous pressure on home builder’s bottom lines, and for 

many endangering their ability to survive the economic downturn. 

Additional credit resources could help them survive until the economy recovers. 

Historically, NAHB builder members have not been able to access SBA loan programs, because they do not serve the primary 

need of most builders, access to AD&C credit. Non-builder NAHB 

members, such as suppliers, manufacturers, and others likely can 

utilize SBA programs. However, SBA guarantee loans cannot be 

used to finance real estate development activity. 

As part of the American Recovery and Reinvestment Act, the 

SBA toolbox was expanded with the creation of the America’s Recovery Capital Loan Program. This program allows for loans of up 

to $35,000 for payments on principal and interest on existing loans, 

qualifying small business debt, including mortgages, and for other 

purposes. NAHB strongly supports this program, and is hopeful 

that it can help our members. 

Turning to the new proposals the Committee is crafting for SBA, 

we applaud the proposed improvements of the 7(a) program, especially the Capital Backstop program. This could help expand the 

pool of participating SBA lenders, while also providing a backstop 

for loans, if no lender can be found. 

One potential improvement we suggest is to further specify the 

borrowers who are eligible to participate. It is unclear to us, for example, if homebuilders would qualify. 

Finally, we support the Committee’s proposal to establish a Supplemental Loan Assistance program to compliment the lending initiatives currently administered by the SBA. Providing for significantly larger loan amounts than the 7(a) or ARC programs, and 

targeting businesses in the construction industry would be extremely helpful to NAHB members. 

Further, creating a role for SBA as a backstop lender can help 

insure liquidity for these loans. But to help homebuilders specifically, we urge the Committee to include residential AD&C financing, as an eligible use of these funds. 

We are glad to work with the Committee as it further develops 

this proposal. And that concludes my remarks. And, again, thank 

you for allowing me to testify today. 

[The prepared statement of Mr. Robson is included in the appendix.] 

Chairman SCHRADER. Thank you very much, Mr. Robson. 

Our next witness is Ms. Zola Finch. Ms. Zola Finch is the Director of Finance of RMI CDC based in Jefferson City, Missouri. 

Thank you for coming. 

Ms. Finch is testifying on behalf of the National Association of 

Development Companies, the leading trade association of certified 

development companies, which administers the SBA’s 504 CDC 

program. Welcome to the Committee. 

STATEMENT OF ZOLA FINCH 

Ms. FINCH. Good morning. My name is Zola Finch, and I’m the 

past Chairman of NADCO. And I’m pleased to provide a statement 

about our industry’s proposals to improve access to capital by small 

businesses. 

9 

I would like to thank Chairman Schrader and Ranking Member 

Buchanan, and the entire Subcommittee for continued support of 

the CDC industry in the 504 program. The Subcommittee has 

worked closely with SBA and our industry to insure the availability 

of this program to small businesses for many years. 

First, I’d like to discuss the need to reduce the cost of the 504 

program. SBA has informed us that the 2010 budget increases the 

cost of the 504 program by 38.9 basis points. This is due to at least 

two factors in SBA’s econometric model; the national unemployment rate, and the forecast of the 504 default rate. With both of 

these factors being impacted by the current recession, but the effect 

is expected to be short-lived, we ask the Subcommittee to support 

an appropriation sufficient to offset the fee increase for the next 

two years, as small businesses return to a growth mode, and improve their cash flow. 

We request this to be taken up as soon as possible in order to 

change the impact of the subsidy fee increase on our FY 2010 borrowers. It does not seem right in this economy to provide small 

businesses fee relief in the Stimulus Bill in February of ‘09, and 

turn around and increase their cost of borrowing in October of ‘09. 

Second, we need to reach out to more small businesses with new 

capital. Congress and the Obama Administration have worked hard 

to put more fixed asset financing and working capital into the 

hands of small businesses hard-pressed by this recession. However, 

our industry believes that more should be done quickly to have 

added impact on small businesses that can create the jobs needed 

to pull America out this recession. We believe that many small 

businesses either need access to larger guaranteed loan amounts, 

or have already used up their allocated maximum under the current 504 law. The current restrictions can be addressed in three 

ways. 

First, to increase the maximum 504 debenture beyond its $1.5 

million limit. Second, to allow a borrower to maximize the use of 

both 504 and 7(a) loan limits. And, third, eliminate the regulation 

that restricts business owners with higher net worth from participating in the 504 program. 

Next, I’d like to comment on the need to reduce loan losses with 

more effect devoted to the loan liquidation and recovery process. At 

Congress’ direction several years ago, SBA created a new regulation that enabled taking advantage of recovery expertise within the 

CDC industry. Many CDCs already perform these tasks for other 

loan programs that they administer, but CDCs have not been given 

the ability and freedom by SBA to do this on a broad scale. 

NADCO believes that losses can be reduced if CDCs perform recoveries and seek settlements from loan guarantors of 504 projects. 

NADCO also recommends other program changes to reduce loan 

losses. We should make the program more flexible in allowing higher owner equity injections to reduce the high cost of first mortgages. If we reduce the overall cost of borrowing, we enable small 

businesses to save more cash for working capital. 

Also, we need to make the SBA programs more relevant and productive. Loan volume for both 504 and 7(a) has improved slightly 

since the passage of the Stimulus Act, but many of those benefits 

10 

have not been yet implemented by SBA. Both programs are still 

down around 50 percent from levels two years ago. 

Part of this volume loss is clearly due to small businesses pulling 

back on demand, but a substantial part could be due to SBA, and 

even our own lending industries failing to respond to the everchanging need of the small business financing world. 

Both the SBA 504 and 7(a) programs are over 20 years old, and 

with an environment of restrictive and overbearing regulations 

having evolved within the federal bureaucracy, with the new administration and fresh thinking from senior policy makers, NADCO 

sees an opportunity to break out of the old program’s restrictions 

and bureaucracy. We see the chance to work with new leadership 

teams, and with the new Congress to expand program benefits to 

more borrowers. And with that expansion comes more jobs. 

NADCO believes the first step in the process of expanding and 

enhancing the 504 program is to clarify the structure of CDCs that 

deliver the program in order to insure and enhanced level of services by CDCs. 

We thank the Subcommittee for considering several program 

changes that will increase the focus of our industry on community 

development through our CDC non-profit organizations in future 

years. We also thank you for developing legislation to more tightly 

define the security that funds the 504 program. 

SBA has become one of the largest economic development agencies in the federal government. By leveraging its guarantee authority in lender industries, SBA has directly assisted in the creation 

of over 5 million jobs, through more than $200 billion in 504 first 

mortgages, 504 second mortgages, and 7(a) guaranteed bank loans. 

But, like any mature agency, SBA has to re-evaluate its products 

to serve the changing needs of small businesses. 

NADCO encourages Congress to collaborate with the new SBA 

management and lenders to tear down those restrictive walls, and 

create the financing and economic development programs vital to 

America’s future. Small businesses that are healthy and successful 

will lead us out of this recession. Let’s help them now. Working together, we can get America working. Thank you. 

[The prepared statement of Ms. Finch is included in the appendix.] 

Chairman SCHRADER. Very good. Thank you. 

Our next witness is Mr. Steve Swartzman, and he’s a principal 

in C3 Capital in Kansas City, Missouri. Mr. Swartzman is testifying today on behalf of the National Association of Small Business 

Investment Companies, the professional association for companies 

that administer the SBA’s SBIC program. Welcome to the Committee. 

STATEMENT OF STEVE SWARTZMAN 

Mr. SWARTZMAN. Chairman Schrader, Ranking Member Buchanan, and members of the Subcommittee, thank you for giving 

me a chance to testify on behalf of the National Association of 

Small Business Investment Committees. 

My name is Steve Swartzman, and my partners and I at C3 Capital manage two funds that hold SBIC licenses. SBICs are private 

equity firms that raise private capital, and agree to invest excluVerDate Aug 31 2005 18:34 Nov 17, 2009 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51034.TXT DARIEN
11 

sively in American small businesses in return for being able to access SBA leverage to multiply the amount of capital available to 

small businesses. SBICs invest, putting our money at risk first, in 

small businesses that we think will succeed. 

First, let me say that this is a great program that has worked 

very well for us, and our investors, and the 33 companies in which 

we have invested over $137 million over the past six years, all the 

way from Florida to Oregon. Our companies have created thousands of jobs, and greatly added to the economy in countless ways; 

all at no effective cost to the taxpayers. 

The program works, and has great and dedicated people in place. 

So, I come here not to criticize, but to promote the growth and utilization of the program. This is a market place program, not any 

kind of a handout. The SBA is paid back in full with interest and 

fees. There is also a market need for SBICs, which invest in small 

businesses that larger funds overlook. We invest in a highly inefficient part of the capital markets that is made more efficient by this 

program, particularly in a recessionary environment like the current one. 

We provide loans to small businesses that are beyond the risk 

profile of banks. And, as you can imagine in the current environment, that risk profile has changed pretty dramatically. The SBIC Debenture program is authorized to provide $3 billion a year in leverage. Less than $1 billion was utilized last year. All 

the money left on the table by the under-utilization of the program 

is money that is not going to grow out best job creators, which are 

small businesses. 

Over the next four years, assuming full utilization, as much as $10 billion could be made available to small businesses under the 

current program, again, at no net cost to taxpayers. The SBIC Debenture program has paid for itself through interest payment and 

fees, and has done so for the past 50 years. 

So, how do we reform the program? First, successful SBICs 

should be welcome to stay in the program by creating a clear and 

predictable re-licensing system. Our second license took over a 

year, despite the fact that our first fund had already gone through 

a lengthy licensing process, and we had the same management 

team in place, and the same strategy, and had a successful fund. 

If a fund has already been fully vetted, licensed by the SBA in 

the past, proven itself financially, complied with federal regulations 

and passed annual examinations by SBA regulators, also, has adequate infrastructure in place, and wants to continue to invest in 

small businesses, then we believe it should be able to receive a new 

SBIC license quickly. 

The family of funds limit, not the individual fund limit, should 

be raised to allow for successful repeat funds to grow and stay in 

the program. Successful SBICs are being driven out of the program, because the repeat licensing process is so onerous, unpredictable, and expensive. It makes no sense to graduate funds out of the 

program that have proven themselves to be successful in the small 

business space. These are exactly the kinds of funds that should be 

kept in the program. And, given that the program is operating at 

below 30 percent capacity, there’s clearly no danger in using up the 

program’s budget by keeping successful funds in the program. 

12 

There are a few other additional reforms that we’d like to propose. The Energy Saving Debenture, which was passed by Congress 

in 2007, is still not available. The SBA needs to implement this investing tool. And Congress needs to fix the technical error in the 

statute that excludes most SBICs from the Energy Debenture program. 

Currently, even if the regs were in place for the program, only 

11 licensees, which have been in place since October of 2008, are 

eligible to utilize the program. Small businesses, not just large 

multi-nationals, should have the ability to compete in the green 

economy. 

Further, SBICs should not be disadvantaged as they compete in 

the market. We need more rules to reflect the market realities and 

protect taxpayer’s investments. 

I also want to mention the Financial Regulatory Reform, and 

how that may affect SBICs. SBICs are already highly regulated, 

and should not be regulated twice by adding additional layer of 

SEC regulation on top of that, that’s already in place. This would 

add additional infrastructure, and cost compliance expenses. And 

we’re already highly regulated by the SBA. 

In conclusion, I just want to say that a fully utilized SBA program can provide billions in capital to domestic small businesses 

that will create more jobs than any other part of the economy. The 

Recovery Act was projected to save or create 4 million jobs at a cost 

of nearly $197,000 a job, but it costs only between $11-33,000 to 

create a job by a small business investment. If the existing SBIC 

program were fully utilized, it could create hundreds of thousands 

of jobs over the next four years, and do so at zero net cost to the 

taxpayers. 

[The prepared statement of Mr. Swartzman is included in the appendix.] 

Chairman SCHRADER. Excellent points. Thank you very, very 

much. Good testimony. 

Our last, but not least, witness is Dr. Sterling Ransone, a family 

physician from Deltaville, Maryland. He’s testifying on behalf of 

the American Academy of Family Physicians, one of the largest national medical organizations at the center of our healthcare reform 

discussions, with more than 94,600 members in 50 states and territories. Welcome to the Committee, sir. 

STATEMENT OF STERLING RANSONE 

Dr. RANSONE. Thank you, sir. Chairman Schrader, Ranking 

Member Buchanan, and members of the Subcommittee on Finance 

and Tax, I’m Dr. Sterling Ransone, a practicing family physician 

from Deltaville, Virginia. 

I’m here representing the 94,600 members of the American Academy of Family Physicians. I’m pleased to be here today to support 

the Small Business Health Information Technology Financing Act. 

Congresswoman Dahlkemper’s bill goes a long way in helping family physicians adopt health information technology, or HIT. 

To give you some context, let me share with you some information about the AAFP and Family Medicine. The AAFP is the only 

medical society devoted solely to primary care. Nearly one in four 

13 

of all office visits made to physicians are made to family doctors. 

This is 208 million visits each year. 

In our fragmented world of healthcare, family physicians treat 

the whole person across all ages. Due to the number of patients 

that we see each year, and the wide range of medical services we 

provide, the AAFP is committed to HIT as one way to improve 

quality and cost-effectiveness of healthcare in the United States. 

H.R. 3014 will be a welcome adjunct to the provisions contained in 

the Recovery Act, which passed last February. 

The AAFP worked closely with Congress to craft the Recovery 

Act provisions on HIT. The law makes an unprecedented investment in HIT, and it reflects an understanding that HIT is critical 

in any reformed healthcare system. However, the Recovery Act 

funding does not contain a crucial piece that this bill provides; 

that’s access to up- front capital for physicians seeking to purchase 

HIT systems. 

We appreciate that H.R. 3014 includes guarantees for loans to 

physicians and practices, and helps providers using HIT to improve 

care and help patients. We also appreciate that this legislation recognizes that solo, small, and medium-sized physician offices still 

find it difficult to afford health information technology. 

While everyone benefits from these HIT systems, the physician 

bears the cost of acquiring the system and implementing it in the 

practice. Unfortunately, primary care practices are seeing declining 

reimbursements, and increasing operating costs. This has severely 

restricted the access to capital to invest in HIT. 

Right now, about one half of family physicians are using electronic health records, and we are proud of that fact. Nevertheless, 

based on an August 2008 survey, the other half said that cost was 

the most important reason that they were not adopting HIT. 

Let me give you a personal example. I’ve got a friend in solo 

practice in Richmond, Virginia, who employs one nurse and one administrator in his three exam room office. Since my physician 

friend is aware of the benefits of HIT, he undertook a serious review of the available electronic health records to find one that 

would fit his practice, was affordable, and appropriate to use. 

Unfortunately, despite his due diligence, he came to the reluctant 

conclusion that as a small business owner, he simply could not afford to make that investment. My friend is precisely the type of 

small practice this bill would target. 

Let me close with three others points. The specifics of the Recovery Act are still unclear, especially the definition of meaningful 

use. Loans such as these, and H.R. 3014 could at least help physicians determine how they’ll pay for HIT. Meeting the eventual 

meaningful use requirements and staying current will mean both 

time, and money for family doctors. Consulting, training, and work 

flow redesign must be considered in addition to hardware and software issues. These are going to be ongoing costs for each physician. 

Last, a streamlined application process with minimal paperwork 

also will be key to attracting the busy physician in solo, small, or 

medium-sized practices. We ask the other witnesses at this hearing 

to develop applications that are as simple as possible. 

Healthcare is a significant component of our economy. Our committees are working right now to pass healthcare legislation that 

14 

will improve quality and cut costs. We appreciate that H.R. 3014 

will help physicians to adopt HIT, which is an essential component 

to any quality improvement initiative. 

While health information is only one portion of this highly complicated industry, investment in HIT at the practice level is critical 

to improving the healthcare of our patients. It will reduce costly 

medical errors. It can help patients manage their healthcare more 

efficiently, and will contribute to the nation’s economic recovery. 

Thank you for this opportunity to testify. 

[The prepared statement of Dr. Ransone is included in the appendix.] 

Chairman SCHRADER. Thank you very much, Doctor. Appreciate 

your coming, and the quality of the testimony regarding HIT. 

I guess I’ll start with the questions. I’ll start with Mr. Humphreys, if that’s all right. 

Legislation we’re considering would require the SBA, theoretically, to finally pay its guarantees promptly. What sort of benefit 

do you think this would have, and what are the real roadblocks, 

from your perspective, in actually making that happen here? 

Mr. HUMPHREYS. Well, the realistic roadblocks are the fact that 

you still need to realize on the collateral. If there are assets held 

as collateral, they need to be liquidated. Oftentimes, in the process 

of liquidation, the borrower hires an attorney, the bank hires an attorney, they go through the liquidation process. It’s very difficult 

on a borrower. That can mean survival, just in the liquidation of 

a single SBA transaction. Oftentimes, it tips them into bankruptcy 

delays. And then once you go through that process, and who knows 

how long it takes, then you can make application to the SBA to realize on the guarantee. 

Currently, that’s held up, but if that’s expedited, that will help, 

but it doesn’t help the real issues of the damage that can be done 

in the process. 

Chairman SCHRADER. Very good. Thank you. 

If we’re able to actually expedite things, do you feel more lenders 

will come into the program? 

Mr. HUMPHREYS. Based upon what I see right now, it could help 

somewhat. I don’t really think it is a significant improvement in 

terms of gaining more participation in the program. 

Chairman SCHRADER. And of the proposals you mentioned, which 

do you think is the most important one that would get more people 

into the program? 

Mr. HUMPHREYS. Well, refinancing current debt is a very big 

issue. And if it could be expedited to the point where upon default 

an application was made to the SBA, and the SBA then would start 

working immediately with the bank in advance of liquidation, or in 

advance of bankruptcy, to try to resolve the issue. And allow, 

maybe, a refinance, allow, maybe, restructuring of the transaction, 

instead of just following strictly the rules of liquidation of existing 

collateral. That might be helpful. 

Chairman SCHRADER. Okay. Thank you very much. 

Mr. Robson, homebuilders, as I said before, have been hardest 

hit, it seems like, of anybody; although, some of my small business 

friends might argue that. What do you think about the federal efforts so far? I mean, increasing the 7(a) guarantees, and some of 

15 

the fee elimination. I mean, the dollar amounts sometimes think 

were a challenge, I would assume, for your men and women. So, 

could you comment, please? 

Mr. ROBSON. Well, the dollar amounts generally, probably, are a 

problem. Really just having specifically not being able to use the 

7(a) program for development activity, that’s going to be most of 

our members’ needs, as far as construction loans, and development 

loans. And even in this market, there are still some building going 

on that need to be financed someway. So, expanding that so that 

it would include development activity would be very helpful. 

Chairman SCHRADER. Do you have a size in mind? 

Mr. ROBSON. Not particularly. I mean, we could work with you 

on that. I don’tChairman SCHRADER. A range, perhaps? 

Mr. ROBSON. You know, I would have to get back with you on 

a specific size. Our members are all across the board, so to say a 

specific size on 7(a) program would be difficult for me to do, but 

I’d be happy to get back with you. 

Chairman SCHRADER. I appreciate that. I appreciate that. 

Ms. Finch, in your testimony, you touched on the fact that it 

would be nice to have the CDCs get expanded authority for liquidation, kind of plays to some of the discussion that Mr. Humphreys 

had. Could you expand on that a little bit? 

Ms. FINCH. As I said in my testimony, yes, the law was passed 

to allow CDCs to do liquidation. And, currently, we just don’t have 

the guidelines, and regulation, and policies from the SBA to really 

fulfill that. So, we have—CDC industry does deliver many other 

types of loan programs, and we have years of experience in doing 

liquidations, so we feel like we are competent, and able to do that, 

but we do need to have regulations, SOPs, et cetera, so that we 

have the tools to move forward and do those liquidations, and 

maximize recoveries on 504. 

Chairman SCHRADER. Okay. Thank you. Very good. 

Dr. Ransone, Ransone, excuse me. 

Dr. RANSONE. That’s fine. 

Chairman SCHRADER. I’m not good at this. 

Health IT, that’s a big deal. I mean, it was in the Recovery Act, 

it’s talked about by a number of groups here on Capitol Hill. And 

certainly, as a veterinarian, I’ve tried to incorporate some of that 

in my little business world, and seen great improvements. 

Is there any other particular aspects in terms of making sure 

that doctors are aware of opportunities that might be forthcoming 

with new legislation for them to access some capital, or at least 

have the opportunity to get this into their practices? 

Dr. RANSONE. Oh, absolutely. The example I used in my testimony was a good friend of mine who was in my class, and the doctors want to adopt HIT technology. The problem is that so many 

of us are small businessmen, just finding that capital—my friend, 

when he went out, he did a good search. And this was last year. 

It was going to cost $40,000 for three people in his office in order 

to buy the hardware to adopt HIT. And that’s exclusive of buying 

licensing fees the next few years, and things like that. 

The biggest thing about the current bill, H.R. 3014 is going to 

be a deferral on the loan for the first one to three years. When anyVerDate Aug 31 2005 18:34 Nov 17, 2009 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51034.TXT DARIEN
16 

one adopts Health Information Technology into their office, you 

can’t go into it right away. When you’ve been using pad and paper 

to take notes about a patient, that’s how we were trained. That’s 

what I’ve done for the last 15 years. And it’s a very innate thing. 

Having to put a computer between you and a patient, you need to 

learn how to use it, especially folks like me who aren’t touch typists. So, there’s an incredible loss of productivity for the first three 

months. 

For me, personally, when we adopted HIT, it took me about two 

years before I finally got up to my initial—or back to my original 

productivity. And it was—HIT is essential, and it’s going to benefit 

the patients, and it’s going to benefit the economy. The problem is, 

is that the local family doctor out there, it takes a while to get 

things going. So, we are very excited, and we would love to see any 

type of deferral on these loans for the first one to three years, so 

that while our productivity is down, we’re not having to pay it 

back. 

An example would be, I buy my car. I just bought a new F150. 

Okay? So, I got a loan, and I’m paying it back right away. I’m driving the car right away. The problem—and I’m getting the benefit 

of that F150. The problem is, with HIT, as soon as we adopt it, and 

we do the research, and we get the computer system in our office, 

we’re not at that same productivity. We have to drop off, and we’re 

not making as much money to pay off our loan, so the deferral is 

really important in that. 

Chairman SCHRADER. Very good. I certainly experienced that in 

my own veterinary world. It took me a couple of years to get back 

up to speed, but wouldn’t do without it at this point in time. 

I’ll defer now to Ranking Member Buchanan for some questions. 

Mr. BUCHANAN. Thank you, Mr. Chairman. 

Mr. Humphreys, I mentioned earlier, and I’ll talk a little bit 

about SBA. Three years ago, I said roughly, two and a half, there 

was an abundance of credit, and today there’s very little or no credit, unless you have a lot of capital. 

I talked to a community banker, as I mentioned earlier, Friday 

for last, this past Friday, and I’ve sensed that in the community. 

A lot of it is because they claim regulators and they’re putting 

pressure on their capital, most banks are leveraged 10-1, 12-1, 

whatever it is. What’s your thought on that statement? Do you 

think that’s the reality today, that most small businesses find 

themselves in, where there’s little or no capital available, other 

than they put a $1 million CD to get $1 million. I mean, how far 

is that off, or is it? 

Mr. HUMPHREYS. Well, I know that things are difficult around 

the country, and for many, many small businesses and banks, as 

well. I can only refer to my bank, and the experience that I have. 

And that’s not exactly true for our bank. 

We increased our business loan total, so now we’re working with 

a fairly small base, $310 million in loans. 

Mr. BUCHANAN. Do you lend in Florida? 

Mr. HUMPHREYS. We don’t lend in Florida. We increased— we 

stick with our market area very consciously, but we increased by 

8 percent our loan totals in ‘08. And year over year to June, we’re 

up 5 percent. And we anticipate, we’re budgeting another 5 percent 

17 

through the end of this year. We just hired three lending officers, 

two of which are managers of branches, and lending officers, another commercial lending officer. So, we’re open for business, and 

we’re making loans. And just the replacement, just to replace the 

paydown of the existing base requires quite a bit of lending. We’re 

closing about 100 new deals a month in our small bank. 

Mr. BUCHANAN. How has the criteria changed? Let’s put it a little different way, for the bank in three years, how you looked at 

a loan three years ago, and what you might look at today? 

Mr. HUMPHREYS. We’ve not—we believe that good business credit 

underwriting is good business credit underwriting. We haven’t 

changed. We’re using the same standards we used for the last 10 

years, and we will continue to use those same standards going forward. A good deal is a good deal, and a good deal today is no different than a good deal yesterday. 

Mr. BUCHANAN. I think, probably, regionally, different parts of 

the country, because every bank will say the same thing as what 

you said. If I find something that meets the criteria, but the problem is everybody had a pretty rough ‘08, ‘09 isn’t much better, so 

the banks, the underwriting is a higher standard. And, yet, you 

can’t find a lot of those companies making it. 

Let me jump over in terms of the SBA. You know, you’ve got this 

90 percent guarantee. Why isn’t more banks taking advantage of 

it, in your opinion? Because it sure seems to me, I mean, it would 

be a great way to get more capital out. The banks are guaranteed 

90 percent. I know it’s not 100 percent, but 90 percent, we’d want 

to have the banks have some sense of obligation, some risk, because it’s the taxpayers’ money. But why don’t we have more 

banks? 

And I’ve got to tell you, in the ‘80s, I was completely frustrated. 

We were trying to help people get loans through SBA, and it was 

just aggravating, cumbersome, took forever, the bureaucracy. You 

know, there’s not enough in it to make it work, because of the energy you’ve got to put in to get one. But that was—I’m hopeful that 

that gets better. The reality of it is, we need to get more capital 

out there for small businesses. But I was just curious, your experience. I don’t know if your bank is using it. And, if it is, what’s been 

your experience? 

Mr. HUMPHREYS. We’ve been an SBA lender over the years. We 

have not used SBA 7(a) in recent years. We are an active 504 lender. 

One of the reasons I think SBA 7(a) grew in volume, and now 

has fallen in volume, is because of the liquidity issue. Banks used 

7(a) loans to create liquidity, because if you have a 7(a) loan, 

there’s a ready market to sell the loan, and replenish the funds 

back into the bank. And liquidity issues right now aren’t what they 

were two years ago, or even a year ago. Banks have more liquidity 

today for a number of reasons, so they’re not seeking the SBA 7(a) 

participation. 

The underwriting standards are still the same. If you write a 7(a) 

loan, it needs to be a good loan. You can’t make it a better loan 

by putting the guarantee—you can’t make a good loan out of a bad 

loan by putting a 7(a) guarantee. And the SBA works with the 

bank. They’re good underwriters there, and they agree with the unVerDate Aug 31 2005 18:34 Nov 17, 2009 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51034.TXT DARIEN
18 

derwriting conditions. So, right now, banks have liquidity. When 

they can make a loan, they will make a loan. If the underwriting 

criteria are there, that loan will be made. And in most cases, the 

bank doesn’t need the 7(a) guarantee to make it a good credit 

transaction. So, I think right now, primarily, liquidity is causing 

the downturn. 

Mr. BUCHANAN. Ms. Wayman, I was going to ask, what is the 

profile of a person that walks in for a Microloan? I mean, what— 

tell me what that person, I know they’re entrepreneurial, I’ve had 

some people ask me about it. I’ve seen it. People said if I could get 

$15,000, I could set up my sprinkler company, or whatever. I just 

need some seed money, but I was interested, because I’m not sure 

I have the right impression, but I’d be interested in your thoughts 

on that. 

Ms. WAYMAN. Thank you for the question. And the average entrepreneur who comes into our business, comes into the Microloan 

Intermediaries and request the loans are low- income, or moderate 

income. They increasingly more are looking to self-employment, because they’ve been laid off from a job. They have business ideas, 

but they can really benefit from business coaching, business planning assistance, getting their credit score all set. And then helping 

them develop their business plan. 

We tend to give—the Microloan Intermediaries provide credit primarily to women. Over half of the loans are made to women, African Americans, Latinos, Asian Americans, and Native Americans, 

so the Microloan Intermediaries are serving disadvantaged populations. 

Mr. BUCHANAN. Now, let’s say someone comes in for a Microloan 

for $20,000. You approve it, and then they come back a year later, 

nine months later, and need another 15. Normally most people, I 

found over the years, that go out of business, they’re out of capital, 

and they’ve got to shut down. Maybe if they had a little bit more— 

what is the possibility of that? 

Ms. WAYMAN. The Microloan Intermediaries are very flexible, 

and work with the credit needs of whatever the entrepreneur is. 

And, in many cases, they come in with smaller loan requests, and 

then pay that back, and build it up. We’re actually seeing that you 

can—if you’ve been paying, and you’re in great shape, you can always come back for more loans up to that $35,000 maximum, of 

course. But what we are seeing now is, part of the goal of the 

Microloan program is to move these entrepreneurs into the mainstream financial sector. And what we’re finding is a number of 

those entrepreneurs we thought were working with the various 

banks, and commercial banks, are now having difficulty in coming 

back, and their lines of credit have been terminated. So, they’re 

coming back to the microlender and get as much of the loan as they 

can. 

Mr. BUCHANAN. And then in terms of—one last question. In 

terms of, you mentioned that line of credit, what do you— how do 

you term out a line of credit? I mean, obviously, it’s paying interest 

on the outstanding, but what kind of terms would they come in and 

sign up for a line of credit? Is that a one-year deal, and then it 

resets, or you ideally want to pay it off, or does it term out after 

19 

interest only for a year, then a five-year amortization, or what do 

you do? 

Ms. WAYMAN. The microloans right now are typically three to six 

year loans. They’re not lines of credit. That’s one of the things 

we’re hoping to see in the re-authorization. It’s more flexible, it 

uses four lines of credit, so that folks, especially folks like air conditioning repair services that are seasonal, aren’t saddled with a 

three to six-year loan. 

Mr. BUCHANAN. Mr. Robson, I wanted to—I’m interested in—because the thing that’s really, in my opinion, really hurting a lot of 

homebuilders is the amount of foreclosures. I want to just jump on 

that for one second, and we’ll get back to the other thing. 

I don’t see how someone in our area, who is so over-built, and 

so hyped, southwest Florida, Florida, Nevada, different parts of the 

country that really things were going up 20 percent a year. But, 

when you’re faced with communities with a lot of foreclosures, and 

you can—say a guy gets cost of building a house, the land, the dirt, 

the land, and sticks and bricks, and all, that’s $250,000. But someone can buy a house down the street, or next to it, for 175, or shortsale. It seems like we’ve got to get through that inventory for builders to have an opportunity, many of them, to get back, unless 

they’ve got someone who’s just go to have a new house. 

I wouldn’t go buy a new house, if I can buy it for a third less 

next door. How big of a problem is that to the homebuilders of 

America? 

Mr. ROBSON. In certain markets, certainly, that’s a problem, but 

that’s really limited to only about four major markets. The rest of 

the country, unfortunately, has that whole mentality spilling over 

to appraisals, and that sort of thing. So, I think there’s—you can’t 

pinpoint one market and say that’s a problem on a national basis. 

And, as I mentioned in my oral statement, there are even in the 

south Florida market, opportunities where somebody has owned 

their own land, and have held it for a long time. Frankly, with 

building materials and that sort of thing, the way they are right 

now, it’s not a bad time to build, if that is what you are so inclined 

to do. 

Certainly, there are price ranges, and certain types of products 

that may be more over-built than others. So, it’s hard to do a 

broad-brush as far as real estate markets are concerned. But, absolutely, foreclosures are a problem, whether it’s owner-occupied, or 

investor, or whether it’s something in inventory that builders had 

been holding. 

Mr. BUCHANAN. You mentioned low appraisals. What were you 

referring to there, just the industry, the banks appraising things? 

I just want to get your—I have my own thoughts on that, but just 

get your thoughts, and what you were referring to. I got the impression you were saying it’s hurting the industry, low appraisals. 

Mr. ROBSON. Well, in fact, we had meetings this morning with 

one of the appraisal groups. You know, what tends to be happening 

is, there’s been a shift primarily to the appraisal management companies that tend to be kind of a low dollar appraisal source, where 

they are demanding two- day turnarounds for appraisals, very 

short time frames. A lot of the appraisers that are doing those, 

frankly, don’t know the market. They’re using short sales, and foreVerDate Aug 31 2005 18:34 Nov 17, 2009 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51034.TXT DARIEN
20 

closed properties when there are actually other comparables out 

there to use. Some of the code that is being talked about that’s 

going to be implemented, actually started in May, where—not that 

it says this, but there can’t be any collaboration. You can’t talk— 

the lender can’t talk to the appraiser, and the buyer can’t talk to— 

I mean, in reality, that has to happen, so there’s a number of 

issues and fixes that need to be made to appraisals. And I’ll give 

you an example in Tulsa, Oklahoma. 

We have a house, a builder came up to me. He sold the house for $230,000, same house for a custom, and in Tulsa, Oklahoma, 

it’s a small enough market that going a few miles down the street 

isn’t going to be a problem. And we’re actually one of the few markets that actually have price appreciation in homes. It came in 

below cost for a construction loan. That is a problem, even in markets that are doing fairly well, so the appraisal issue is a major, 

major concern. 

Mr. BUCHANAN. The last question was just, the ARC loans you 

mentioned, how does that—what size should they be? How is that 

going to help? Will that help homebuilders, and maybe also just— 

I don’t know many homebuilders that have really worked with SBA 

much in the past. 

Mr. ROBSON. Well, they haven’t—certainly, we have had some of 

our builders try to access ACR loans. One—I think there’s two or 

three problems with it. If you don’t deal with a bank that’s already 

in the program, if you’re a new customer, you’re probably not going 

to get it. I think banks are using those programs to help their existing customers. If you’re not with a bank currently, trying to get 

one as a new customer is going to be very, very difficult. Secondly, what we’re finding is that on the ARC loans, a $35,000 

limit, you’ve got the same pack of material, I mean, the same processes, and everything else that go into a regular SBA loan for 

$35,000. So, I’m not sure how cost- effective it is with the amount 

of red tape that you have to go through to make it worth somebody’s while, unless it’s with an existing customer. 

Mr. BUCHANAN. Ms. Finch, I was just going to ask you, on CDCs, 

would they support changes to the program if authorized debenture 

is greater than $4 million? 

Ms. FINCH. Yes, we would. And the reason being is because, as 

I said in my testimony, we’re looking at multiple projects. So, I’ve 

got borrowers out there, personally, that have hit the $1.5 million, 

or if they’re public policy, a $2 million limit. And if they’re a manufacturer, they hit the $4 million limit. So, in order to do multiple 

loans to a borrower, we would be supportive of that. 

Mr. BUCHANAN. Mr. Swartzman, I wanted to run through. You 

said that if you’re already doing business as SBIC, it takes a year. 

Why does it take that long if you’re looking to expand, or whatever? 

Mr. SWARTZMAN. That’s a good question. I’m not sure I know the 

answer. 

Mr. BUCHANAN. I mean, does it take that long to implement it, 

or does it take that long to get an answer? I mean, because it’s one 

thingMr. SWARTZMAN. From start to finish. I mean, that’s from starting the process, it’s a fairly—it’s a multi-stage process to get a liVerDate Aug 31 2005 18:34 Nov 17, 2009 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51034.TXT DARIEN
21 

cense. You go, you make an application. Then they invite you, once 

you make your application, to come in for an interview. If the interview goes well, you’ve got something called a Go-Forth letter, which 

invites you to make a secondary aspect of the application process. 

And then there’s some back— you go back and forth. We’re very 

diligent about going through that process. And whenever we have 

questions about our application, we would typically get back within 

two to three days. So, a lot of it, I think, is just staffing issues 

there, and justMr. BUCHANAN. How long does it take, if you’re starting from 

scratch, wanted to set up an SBIC? 

Mr. SWARTZMAN. Well, the first time we went through it, it took 

us two years, which, I’d say for somebody who’s going through that, 

as you’re going through it, if you knew it was going to take two 

years, you probably wouldn’t do it. 

Mr. BUCHANAN. Yes. 

Mr. SWARTZMAN. Clearly, at the time we were doing that in the 

beginning, it was around the 2001 time frame. 

Mr. BUCHANAN. I can’t imagine anything taking two years. 

Mr. SWARTZMAN. Yes. Yes. 

Mr. BUCHANAN. I tell my bankers I want a quick yes or no. No, 

is okay, if you don’t want it, or whatever, but the bottom line, I 

don’t want to drag for 30 days, but two years, that’sMr. SWARTZMAN. It’s not—certainly, that was acceptable. I think 

they were going through a period where they had a lot of problem 

loans, and we’re changing the procedures, and making them much 

more rigorous. And we fully support that, and understand it should 

be a very rigorous and thorough process, because there’s a lot of 

taxpayer capital at risk. 

On the other hand, I think what we’re proposing is once they’ve 

gone through that vetting process, however long that takes the first 

time around, and you’ve got funds, you’ve got an existing fund, you 

have a management team that’s proven, you have an infrastructure 

in place, it ought to be a really expedited process. And a year is 

way too long. 

Mr. BUCHANAN. Just the last question. What kind of companies— 

you said you had 33 companies, and how many employees in those 

companies? 

Mr. SWARTZMAN. Oh, gosh. It ranges from probably the smallest 

investment, the smallest company has maybe seven or eight employees, but wonderful margins, and a great little business. And 

the largest ones are maybe 2,000, so there’s a huge range. 

Mr. BUCHANAN. Thank you. I yield back. 

Chairman SCHRADER. Thank you very much. Good questions, 

good answers. 

At this time, the Chair recognizes the gentleman from Kansas, 

Mr. Moore. 

Mr. MOORE. Thank you, Mr. Chairman. I would like to just take 

a personal privilege here to welcome Mr. Swartzman, who is a constituent in my district, and thank you for being here today, Mr. 

Swartzman, and the other witnesses for your testimony. 

Mr. Swartzman, in your testimony, you make a point that SBA 

regulations often provide a disincentive for equity firms to receive 

the SBIC designation, and debenture guarantee. Specifically, do 

22 

you have suggestions as to how you believe the SBA regulations 

could or should be changed, and would many more firms if these 

changes were made be willing to participate in the SBA program? 

Mr. SWARTZMAN. Yes. I mean, I think the main one would be just 

making the process for existing funds, again, which have proven 

themselves, and have infrastructures, expediting that process to 

keep them in the program, that’s certainly the easiest way to utilize more of the capital that’s available. And, again, each year Congress provides a certain amount of capital. And I think the program has been using less than a third of that. 

I think there are a few other areas that were listed, and I want 

to put forward, if we could provide some of the same incentives to 

companies owned by veterans as low and moderate income types 

of—low and moderate income areas that there are already some incentives in place. 

I think it’s important when we look at regulatory reform that’s 

going through, making sure that there’s a way that SBICs can sort 

of be set aside. And we have some personal experience, having— 

we were in the State of Missouri, we’re in Kansas City on the Missouri side, and on advice of counsel, we registered as an investment 

advisor in the State of Missouri. And they had just gone through 

changing the process from a handwritten system to a—a manual 

system to an electronic version. There was a glitch in our application. And, again, it’s something that we thought we had to do, but 

it didn’t really apply to anything that we did. And three years went 

by. Every year we sort of updated and sent it, and we found out— 

then we’d pay our annual dues. We found out that there was a 

problem with our application, and they came at us and told us that 

we had to pay like a $200,000 fine, and all sorts of legal, sign some 

documents. And we went back and spent—we probably spent 

$100,000 in legal fees to fight this, and we found out we were the 

only firm in the State of Missouri that had even tried to register. 

So, when we presented them with all this, look, guys, we’re going 

to do this. You’re going to fine us. What are you going to fine the 

other private equity groups that have been around for 10 years, 12 

years, and been operating? And they quickly dropped it. But I 

think it just shows that for firms our size, clearly present no systemic risk, to stay in compliance and do the things you need to do, 

you need to have an infrastructure in place for that. 

Mr. MOORE. Thank you, sir. 

Mr. Humphreys, recently, my office was contacted by a constituent who is a small business owner, and she was interested in 

obtaining an American Recovery Act, or ARC loan. As you know, 

the ARC loans were authorized by the Recovery Act, and provide 

up to $35,000 to small businesses struggling to meet existing debt 

obligations. The loans are backed by the federal government 100 

percent. 

My constituent contacted the bank she’d used for four years. 

They told her the bank had decided not to participate in the ARC 

loan program. She then checked with both the local SBA office, and 

the local Business Development Center. She found that although 

the ARC loans are very new, only a handful, approximately six to 

eight, have been issued in the entire Kansas City area. 

23 

On July 1st, I held a forum in my district on access to capital 

for small businesses, and I know there’s a great real demand for 

ARC loans. Can you tell us, if you know, why aren’t more banks 

issuing these loans? Why can’t more businesses access these loans? 

Mr. HUMPHREYS. Well, somebody mentioned earlier that there’s 

as much work, research, employment of people to round up information to make an ARC loan as any other kind of SBA loan, a tremendous amount of documentation. And, yet, the underwriting 

standards on the SBA side aren’t what the 7(a) demands, or the 

504 program demands, and certainly not what the bank would expect. 

The ARC Loan program is a little bit more like a grant. The expectation for repayment is not as high. It’s an opportunity to help 

out and, in our opinion, it’s a little bit of help. But, in most cases, 

it isn’t what the business needs. The business needs a restructuring. They need help not just $35,000 here, and then maybe another quicker response to a guarantee claim on another SBA loan. 

I think the SBA and the banks need to work together to be creative to restructure the business so that it can work going forward. 

The ARC program, to me, and a lot of other bankers, is just a 

thumb in the dyke. 

Mr. MOORE. Thank you, sir. 

And, finally, to Dr. Ransone, is it Ransone, sir? 

Dr. RANSONE. It’s Ransone. 

Mr. MOORE. Ransone. Excuse me. 

Dr. RANSONE. Yes, sir. 

Mr. MOORE. I appreciate your testimony, what you were talking 

about, electronic medical records, a system nationwide. In fact, I 

filed a bill two or three years ago that would do—the bill is not the 

one we’re talking about here. But I tell folks back home, the first 

thing you do when you walk into a doctor’s office or a hospital, is 

you’re given a piece of paper, and say here, complete your medical 

history. And I say sometimes the patients get the information 

right, and if they do, the doctors can provide correct medical care. 

And if they don’t, who knows what’s going to happen. 

Dr. RANSONE. Yes, sir. 

Mr. MOORE. But you’re exactly right. I think we need a nationwide system of electronic medical records that would end up saving 

money, even there’s an up-front cost. But, also provide better care 

to— enable physicians, and care- givers, healthcare-givers to provide better care to patients. So, I applaud what you’re doing, and 

keep going. 

Dr. RANSONE. Thank you. 

Mr. MOORE. Thank you, Mr. Chairman. Yield back my time. 

Chairman SCHRADER. Thank you very much. Thank you very 

much. 

We’ll go to the good gentleman from Colorado, Mr. Coffman. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

First of all, to Dr. Ransone, in the Recovery Act, or the Stimulus 

Act, money was appropriated for Health IT. Is your organization 

aware—is that filtering down to, in terms of access? 

Dr. RANSONE. Not yet. The money that was provided towards 

HIT adoption under the Recovery Act is provided in additional incentives for physicians. An example right now, under Medicare, 

24 

CMS right now, starting at the beginning of the year, for each 

Medicare patient that I see and bill, I get an additional 2 percent 

if I file my prescriptions electronically. Two percent for my 40 percent, give or take, Medicare patients isn’t enough to give me 

enough capital to buy a new system. 

The concern that I have for the physicians over the next few 

years is that number is going down. In two years it will be 1 percent additional bonus, I guess you could call it. Two years after 

that, it’s half a percent, and then after that we’re actually going 

to be fined for not e-prescribing. 

Now, e-prescribing is interesting, because I’ve had an electronic 

medical record in my practice now for about seven to eight years 

or so, and I thought I was e-prescribing. I’ve faxed prescriptions 

when a patient comes to see me. I can do it on the computer, and 

it’s a wonderful thing. And, as Representative Moore said, the system is wonderful. I can’t tell you how many patients I have who 

come in, who say well, what did the ER doctor put you on? Well, 

a pink pill and a white pill. Well, what was that? I’m not really 

sure. What was it for? I don’t know. 

With my system now, I can pull up the patient’s record from the 

emergency room from the night before, and I can know exactly 

what that ER doctor thought, what he put him on. And I can give 

a lot better care, and I can save lives doing this. 

The problem with the money right now, back to your question, 

in the Recovery Act, it’s just it’s not accessible yet. And what is accessible, isn’t enough for us to put an outlay for small businessmen 

to put these computer systems in our office. So, that’s been the big 

problem. 

Mr. COFFMAN. Well, it sounds like a negative net effect, because 

at the end of the day, with the mandate to do the e-prescriptions, 

and if people aren’t able to do that with Medicare, if it’s not costeffective for them to do that, then they just may not see Medicare 

patients. 

Dr. RANSONE. Oh, absolutely. And, eventually, it’s going to be an 

access issue. For me, personally, I live in a town that is 20 minutes 

from where I grew up, and I see a lot of patients that my dad saw. 

He was a family doctor, practiced for 30 years in this rural area. 

And I see a lot of folks. And the Medicare folks who come in, I’m 

not going to be able to say Aunt Sookie, I can’t see you any more. 

You know, that’s not going to happen. But what’s going to happen 

is, new Medicare patients, and as the baby boomers grow up and 

come in, I’m not going to be able to see them. 

In Virginia right now, this kind of speaks to healthcare financing, in general, Medicare reimbursement hadn’t changed for 17 

years. This is not Medicare, this is Medicaid. But the amount that 

I was paid for the last 17 years hasn’t changed. Okay? I pay my 

nurse more. I pay the power company more. I pay more in rent, 

but my reimbursement or pay hasn’t changed at all. So, I’m operating at more and more of a deficit every year. 

A good friend of mine did a study in his practice, and he said 

well, what if everyone paid what our best insurer pays? What if everybody paid Medicare rates, and what if everybody paid Medicaid 

rates? If every single one of his patients paid Medicaid rates, each 

one of the physicians would have been $75,000 in the hole at the 

25 

end of the year. So, when we see a Medicaid patient, we are losing 

money in our practice. And then put on top of that other requirements that are going to make us lose money, in a few years, if I 

don’t have e-prescribing, I’m going to be fine 1.5 percent because 

I’m not doing this. It’s just—the requirements that are placed upon 

us, and then the administrative burden that doesn’t allow us to see 

enough patients, it’s not a financially viable model to run a small 

practice. So, what happens? A lot of the small business physicians 

end up going working for hospitals or larger groups, and the rural 

areas are the ones that suffer, because—when I came out, I knew 

where I wanted to go, and I wanted to go back and serve the people 

that I grew up with. And I did it, and I was fortunate to do it. But, 

in order to do it, I decided to work for a hospital. 

Unfortunately, most people who come out of medical school, cur- rent medical school debt is about $148,000 when you come out of 

school. Most of them don’t see that. I can move to a rural area and 

service that kind of debt. I’m sorry. I got away from the question. 

Mr. COFFMAN. That’s okay. It’s a good discussion for another 

committee. 

Dr. RANSONE. Yes, sir. Sorry about that. 

Mr. COFFMAN. And we’re about to expand that whole system for 

you here pretty soon. 

Mr. Robson, a question for you on financing. And that is that for 

homebuilders, I understand that there was a requirement in multifamily housing, condominiums, say town homes, but it dealt with 

FHA, that made it difficult with homebuilders to say you had to 

had to have a certain threshold sold before FHA financing was 

available. Can you tell me where that is right now from your industry’s perspective? 

Mr. ROBSON. Well, we’re talking to them about getting that renegotiated. I think it’s 75 percent. 

Mr. COFFMAN. Seventy-five percent? 

Mr. ROBSON. Which is extremely difficult in today’s market. 

Mr. COFFMAN. Pre-sales have to be about 75 percent? 

Mr. ROBSON. Right. 

Mr. COFFMAN. Okay. 

Mr. ROBSON. And, also, there’s a certain limit on how many FHA 

loans will be allowed. I think it’s a maximum of 03 percent. 

Mr. COFFMAN. Thirty percent? Okay. How significant is that to 

yourMr. ROBSON. That’s very significant, especially if you are—well, 

given the financing, in general, if you’re in that kind of price range, 

FHA is the only game in town. I mean, as far as mortgage markets 

across the spectrum, FHA, or Fannie and Freddie conventional 

mortgages are 75 percent, and FHA is 25 percent. There is no other 

market. So, if you’re looking at first time home buyer, condos, 

lower income condos, to have a concentration limit of FHA loans 

means you only sell 30 percent of the condos. 

Mr. COFFMAN. Okay. My final question then. Mr. Humphreys, it 

just seems like from a regulatory standpoint what I’m hearing from 

my local bankers that the control of the currency has come down 

unreasonably hard, with a mentality of zero risk in hiking their 

capital reserve requirements. And that that—you can’t have a zero 

risk mentality when it comes to credit markets in a free enterprise 

26 

system. Is that your view? Could you speak to that for just a 

minute? 

Mr. HUMPHREYS. Well, that’s certainly my view. You can’t have 

a zero risk mentality. The banking business is a risk business, and 

we balance risk versus reward constantly. That’s what we do when 

we underwrite loans. 

You mentioned the Comptroller. We’re audited and regulated by 

the FDIC, our bank, and we feel like the FDIC is a good regulator. 

They’re very professional. They do a good job. It’s been tough for 

them, because there is so much to do out there, and the banks need 

their help. But, at the same time, it’s a difficult market to regulate 

in, as well, because of the number of defaults in banks, et cetera. 

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

Chairman SCHRADER. Thank you very much. 

The Chair will recognize the gentleman from Missouri, Mr. 

Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

To follow-up with Mr. Humphreys, with Mr. Coffman’s questions 

here, I know that the regulatory authorities have really kind of 

gone overboard, and have been rather harsh in their criticism on 

some of the requirements for some of the loans that have been 

made. And, as a result, there’s a little bit of access-to-credit problem as a result of their push-back. Have you seen the regulators 

look rather harshly, or with a very discriminate eye at SBA loans? 

Have they given some problems with those, as well? 

Mr. HUMPHREYS. I haven’t seen that SBA loans, specifically. But 

loans, in general, including SBA loans, are looked at very closely. 

When the FDIC comes into a bank, if the bank is under-capitalized, 

or is not producing net earnings, there’s a question about the reserves. There is a tendency, I think, by the regulator to take a 

more difficult, serious look at all loan transactions. And they have 

been— it’s been tough. We have really had to tape-up, so to speak, 

for every examination. There’s no doubt about that. 

But I also think on the other side of the question, if the bank 

is in good condition, reasonably well- capitalized, generating some 

earnings to replace reserves, adequate reserves, and not a lot of defaulted loans on the books, the regulators go above and beyond to 

try to work with the bank to make sure that they don’t go overboard on their assessments. 

Mr. LUETKEMEYER. I love that comment, ‘‘Tape- up’’. As a former 

bank regulator, I know what you’re talking about. 

A question for you with regards to your 90 percent guarantee, 

your comment was you’d like to see an extension of that. I know 

that one of the bankers at home that I talked to made the comment 

to the effect that, you know, if we could get to the 90 percent level, 

it would certainly be helpful. And I know that by extending this, 

I’m sure it’s going to help some more folks. Have you seen the benefits of this 90 percent guarantee already in your bank? 

Mr. HUMPHREYS. Yes. Although, we haven’t made any new SBA 

7(a) 90 percent guaranteed loans, I see it as a benefit. Ninety percent is better than 80 percent, or 70 percent. And if you make a 

loan with an SBA guarantee, you’ve got some reasons to do so. And 

having that guarantee at 90 percent is certainly an advantage. And 

I mentioned earlier, liquidity is also an advantage. I think a 90 

27 

percent guaranteed loan is a much more saleable commodity than 

an 80 percent guaranteed loan, for example. So, it’s a positive thing 

both for the customer, and for the bank. 

Mr. LUETKEMEYER. Well, my constituent was telling me that it 

looked to him it was—it was very helpful to him from the standpoint that suddenly because of the increased regulatory environment, and pressure by the regulators, this is a way to shift some 

risk over here, and sort of minimize their criticism of some of his 

loan portfolio. 

Mr. HUMPHREYS. Well, it’s hard to shift risk by virtue of the 

guarantee. As I mentioned earlier - 

Mr. LUETKEMEYER. Go from 50 percent to 90 percent, though. 

Mr. HUMPHREYS. Yes. 

Mr. LUETKEMEYER. That’s a little bit of shift. 

Mr. HUMPHREYS. The regulators look at the loan as being a—for 

what it is. If the loan has an elevated level of risk in it, having that 

guarantee might be somewhat helpful, but it doesn’t erase the risk 

involved with respect to the loan transaction. Because the regulators know that you have to go through the process of collection, 

and that process might be very painful. In fact, it might put the 

rest of the business in jeopardy, just through the process of collection. 

Mr. LUETKEMEYER. Thank you. 

Mr. Swartzman, with regards—you made a comment with regards to one of the programs, that there’s only roughly about a 

third of the money that actually is loaned out it in. Is that correct? 

Did I misunderstand that? 

Mr. SWARTZMAN. Yes. No, that’s the amount of capital that’s authorized every year. 

Mr. LUETKEMEYER. Why was not the balance of the funds used, 

not enough demand, or was it over-funded, too much paperwork, 

nobody wants to go through the process? 

Mr. SWARTZMAN. Well, I can - 

Mr. LUETKEMEYER. Can you speculate? 

Mr. SWARTZMAN. I can’t comment on whether it’s too much that’s 

authorized, but the reason that not more is utilized, is a combination of the fairly slow rate at which new licenses are being issued. 

I think the number of licenses issued last year was only six or 

seven, and it used to be a multiple of that. So, there are far fewer 

licensees. Obviously, that’s going to reduce demand for the program. And then regular fluctuations in the market in terms of 

needs for capital, so it’s a combination of those two things, one of 

which, there’s nothing we can do about in terms of the demand in 

the market, but the number of licensees. 

Mr. LUETKEMEYER. Dr. Ransone, very quickly, you’re testifying 

with regards to the medical technology stuff. 

Dr. RANSONE. Yes, sir. 

Mr. LUETKEMEYER. Maybe this is a moot question here, but how 

far do we go with the SBA program with regards to helping a doctor in his practice finance purchase of medical equipment, operating costs, buying buildings, refinancing debt? Any of that, all of 

that, some of that? 

Dr. RANSONE. The bill, itself, is strictly for health information 

technology, and for the initial capital outlay. The problem that I 

28 

can foresee in the future is, once we get people over that hump, is 

how do we continue to manage that? And that’s what I think most 

of the physicians who are small business owners are concerned 

about. And they’re trying to look towards the future. 

Part of the future is, right now, we don’t have interoperability 

standards amongst computers, so if my computer can talk to my 

local hospital, it might not work in four years to talk to somebody 

else’s hospital. And if— we’ve asked the folks at CMS to come up 

with certain standards that will help us. And that’s been a second 

barrier that a lot of physicians have had, is we’re worried that you 

make the initial investment, and then I can’t—my computer can’t 

talk to the hospital any more. 

The other things that you mentioned, right now, that’s where 

some of the stimulus funds will help cover. Increased funding will 

help us pay for software licenses. If we can expand our practices, 

it will help us pay for new hardware. If things happen where we 

don’t meet interoperability standards, it will help us go with new 

technology, and things like that. 

Mr. LUETKEMEYER. Very good. Thank you. 

I yield back. Thank you, Mr. Chairman. 

Chairman SCHRADER. Thank you very much. I’d like to thank the 

panel for a very excellent presentation, and obviously got us all interested with a lot of good questions. Appreciate your interest in 

supporting the bill, and additional suggestions that we’ll take into 

consideration as we move forward. Thank you for making the trip 

to Washington, D.C. Some came a little further than others, but 

that’s still all very good. 

I ask unanimous consent that members will have up to five days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. And this hearing is now adjourned. 

Thank you all. 

[Whereupon, at 11:38 a.m., the Committee was adjourned.] 

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