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51–035 PDF 2009

FULL COMMITTEE HEARING ON 

OVERSIGHT OF THE SBA AND ITS PROGRAMS 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 29, 2009 

Small Business Committee Document Number 111-040 

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 SUBCOMMITTEES 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

PARKER GRIFFITH, Alabama 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

W. TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

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 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, Pennsylvania, Chairman 

HEATH SHULER, North Carolina 

BRAD ELLSWORTH, Indiana 

PARKER GRIFFITH, Alabama 

MARY FALLIN, Oklahoma, Ranking 

LOUIE GOHMERT, Texas 

(III) 

Subcommittee on Regulations and Healthcare 

KATHY DAHLKEMPER, Pennsylvania, Chairwoman 

DAN LIPINSKI, Illinois 

PARKER GRIFFITH, Alabama 

MELISSA BEAN, Illinois 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

LYNN WESTMORELAND, Georgia, Ranking 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

Subcommittee on Rural Development, Entrepreneurship and Trade 

HEATH SHULER, North Carolina, Chairman 

MICHAEL MICHAUD, Maine 

BOBBY BRIGHT, Alabama 

KATHY DAHLKEMPER, Pennsylvania 

ANN KIRKPATRICK, Arizona 

YVETTE CLARKE, New York 

BLAINE LUETKEMEYER, Missouri, Ranking 

STEVE KING, Iowa 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

(IV) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Graves, Hon. Sam .................................................................................................... 2 

WITNESSES 

Mills, Hon. Karen, Administrator, U.S. Small Business Administration ........... 3 

Shear, Mr. William, Director, Financial Markets and Community Investment, 

U.S. Government Accountability Office .............................................................. 5 

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 23 

Graves, Hon. Sam .................................................................................................... 25 

Mills, Hon. Karen, Administrator, U.S. Small Business Administration ........... 27 

Shear, Mr. William, Director, Financial Markets and Community Investment, 

U.S. Government Accountability Office .............................................................. 34 

Statements for the Record: 

GAO Report to the Chairwoman: Additional Steps Should be Taken to Address Reforms to the Disaster Loan Program and Improve the Application 

Process for Future Disasters ............................................................................... 46 

Small Business Administration Response to Questions for the Record: August 

2009 ....................................................................................................................... 88 

(V) 

(1) 

FULL COMMITTEE HEARING ON 

RECENT GAO REPORTS ON SMALL 

BUSINESS ADMINISTRATION PROGRAMS 

Wednesday, July 29, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 2360 

Rayburn House Office Building, Hon. Nydia Vela ́zquez [chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Moore, Dahlkemper, Bean, 

Clarke, Ellsworth, Graves, Buchanan and Luetkemeyer. 

Chairwoman VELA ́ ZQUEZ. This hearing is now called to order. 

This past January, the House adopted Rule 11, which requires 

quarterly hearings on waste, fraud, abuse and mismanagement of 

programs under the Committee’s jurisdiction. In the last six 

months, we have held 13 oversight hearings on a broad range of 

issues. Today we will continue that track record of upholding transparency. Our discussion will include an examination of several SBA 

programs and an evaluation of steps that the agency has taken 

thus far. 

In recent months, Americans have been reminded of the important role that small films play in our economy. The Recovery Act 

alone contains several provisions designed to help small businesses, 

and the majority of those measures fall under the SBA umbrella. 

That is why it is important that we take time to assess the agency’s progress. 

Even as our economy starts to rebound, small firms are facing 

significant challenges in accessing capital. The Recovery Act took 

steps to address those obstacles. For one, it increased the SBA loan 

guarantees, giving banks greater incentive to lend. Any policy that 

puts cash back into the hands of entrepreneurs is critical. And yet 

SBA has not implemented these provisions as quickly as we would 

have hoped. 

Lending measures are vital, and we need to be sure SBA has the 

direction it needs to put them in place. 

As those of us who have been on the Committee for some time 

know, SBA has a history of struggles with lending. Perhaps the 

most salient example would be the Disaster Loan Program, which 

faced significant challenges following Hurricane Katrina. At the 

time, we asked GAO to take a look at the initiative and to evaluate 

SBA’s response to the hurricane. 

2 

The resulting report led to the passage of the Disaster Response 

and Loan Improvements Act. Later in this hearing, we are going 

to hear from GAO about what SBA has accomplished since the act 

was passed. We will also discuss areas in which work is yet to be 

done. That way we can be sure that the agency is fully primed and 

fully prepared the next time around. 

In addition to obstacles in lending, SBA has often grappled with 

contracting issues, perhaps most notably the embattled HUBZone 

program. It is important that we have an idea of where that initiative stands. Fraud within the program was the primary focus of 

our oversight hearing in May, and it is this Committee’s hope that 

the abuse has since then been rooted out. 

Oversight is a critical part of the legislative process. For federal 

agencies, it provides an honest analysis of current programs and an 

opportunity to change direction. After all, that is the primary purpose of GAO. As the investigative arm of the United States Congress, it does not seek to simply point out wrongs. Its ultimate goal 

is to provide objective recommendations for efficiency and improvement. 

In examining the current state of SBA, it is clear that there is 

still significant work to be done, and the stakes could not be higher. Our economy, while recovering, has a ways to go. Now more 

than ever, we are counting on small firms to drive growth and create jobs. In making sure they are able to do that, we need an SBA 

that can step up to the plate and fulfill its role as a champion of 

small business. 

With renewed focus and a fresh direction, I feel confident that 

SBA can play that role. I look forward to seeing progress unfold in 

the coming weeks and months ahead. 

I would like to thank both Administrator Mills. Congratulations 

on your appointment. Welcome to this Committee. This is your first 

appearance, and Mr. Shear for being here for this discussion. I 

know we all look forward to hearing what they have to say, and 

with that, I yield to Ranking Member Graves for his opening remark. 

Mr. GRAVES. Thank you, Madam Chair. 

And I also want to thank Administrator Mills for being here and 

Mr. Shear for being here. We appreciate you coming in. We look 

forward to hearing what you have to say about all the many different programs at SBA. 

The Small Business Administration is tasked with a great responsibility providing all of the necessary tools for entrepreneurs to 

start and grow small businesses. In order to complete this task, the 

SBA employs a number of programs, including the HUBZone Program, the 8(a) Program, the Disaster Loan Program, and the 7(a) 

Program, just to name a few of them. 

It is the responsibility of the Committee on Small Business to insure that the SBA operates efficiently and effectively, and when it 

becomes apparent that the SBA is failing to reach its goals or serve 

its purpose, it is also the duty of this Committee to evaluate the 

program and assess the Small Business Administration and get it 

back on track so that it can continue to serve America’s entrepreneurs. 

3 

In the wake of Hurricanes Katrina and Rita, it became apparent 

that the Small Business Administration was not equipped to carry 

out the responsibilities of its disaster loan program, and as a result, new requirements were put in place to strengthen the program and make sure it was, in fact, as efficient and helpful to victims as possible in the event of an emergency. 

Similarly, the HUBZone Program at the Small Business Administration, which is designed to bring businesses to areas that have 

been traditionally under served, has struggled to correctly identify 

and enforce those who are eligible to participate in the program. 

And, again, recommendations have been made to begin to remedy 

that problem. 

This hearing provides an opportunity to examine these problems 

and others in which the Small Business Administration may be 

struggling and to ascertain the success they have had in implementing these new requirements. The small businesses of America 

play a crucial role in maintaining a healthy economy. Consequently, the manner in which the Small Business Administration 

conducts itself has a direct result on the health of the American 

economy. 

This is a very important hearing taking place at a very important time, and the testimony that we hear today will have a direct 

impact on the health of America’s small businesses. 

And, again, I want to thank the witnesses, both of you, for being 

here and, Madam Chair, thank you for holding the hearing. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Graves. 

And it is my pleasure to welcome the Honorable Karen Mills. Ms. 

Mills was sworn in April 6th, 2009, as the 23rd Administrator of 

the United States Small Business Administration. 

Prior to being confirmed as SBA Administrator, most recently 

Ms. Mills served as the president of A&P Group in Brunswick, 

Maine. The SBA helps small business owners and entrepreneurs 

secure financing, technical assistance, training, and fairer contracts. 

Welcome, Ms. Mills. 

STATEMENT OF THE HONORABLE KAREN MILLS 

Ms. MILLS. Thank you very much. 

Chairwoman Vela ́zquez, Ranking Member Graves, members of 

the Committee, it is a great honor to testify before you as my first 

time as the SBA Administrator. Given the Obama administration’s 

mandate to us to eliminate and prevent waste, fraud, and abuse in 

government programs, I am pleased to testify as my first of these 

regularly scheduled hearings on this topic. I consider this to be one 

of my most important responsibilities. 

As you know, as all of you know and as you mentioned, small 

businesses account for 60 to 80 percent of the new jobs that are 

created. Over half of Americans who work own or work for a small 

business, and small businesses are going to continue to be the 

foundation of innovation and competitiveness and the creation of 

our 21st Century jobs. 

But we know that these are difficult times for small businesses, 

making the SBA’s mission more important than ever. We maintain 

a lending portfolio at the SBA that supports nearly $90 billion, 

4 

mostly in loan guarantees. We are charged with making sure that 

23 percent of federal government contracts are given to small businesses. 

We have a strong network of over 14,000 affiliated counselors 

that help small business owners grow their businesses, and we currently have on call more than 2,000 employees who stand ready to 

help in case of a disaster. We are committed to integrity, accountability and effectiveness in all of these programs. These principals 

are at the core of what we do as an agency, and at the core of who 

we are. 

The Recovery Act, which was passed with all of your help and 

creation, is a great example of this commitment. Since the act 

passed, the SBA has supported nearly seven billion in lending approvals to small business. Weekly volumes are up 45 percent over 

the weeks before the Recovery Act, and most importantly, more 

than 750 lenders who had not made a loan since October when the 

lending markets froze are back in the program making SBA loans, 

and some of them had not made a loan since 2007. 

We have a chart here in the green of where we are in the Recovery Act programs. The light green is sort of when it was in the 

planning phase and when it is in the dark green, it is in the market, and I will be happy to take questions on that as well. 

But one of the first actions I took on becoming Administrator was 

in implementing these Recovery Act programs, to make sure there 

was a senior level risk management team in place to oversee the 

roll-out, and we work closely with the Inspector General in terms 

of risk mitigation and with small teams in each individual program 

to build them. 

I just want to mention the ARC Loan Program, America’s Recovery Act, as an example of how this risk management worked. This 

is a new program for a specific purpose in a unique time. It is a 

bridge over troubled water for viable but struggling small businesses. This is not in our traditional risk profile, but we were 

charged with creating a program that was 100 percent guaranteed 

by the SBA with zero interest cost for the borrower. So we knew 

we would have a considerably higher default rate. 

We also knew we would have to do extensive lender education, 

and I am happy to say that we trained about 1,300 institutions in 

the week following the roll-out. As a result, we have 47 states 

where ARC loans have been made and 26 million in the hands of 

small business owners. 

That level of discipline that we are putting forth in the Recovery 

Act is now the model that we are transferring to the core programs 

at the SBA. We are optimizing operations in areas such as disaster 

assistance, where we have added to the on-call employees. We have 

added surge space in case of a catastrophic disaster, and we are 

doing marketing and outreach in order to prepare areas to know 

what it is they need to do in a disaster, and we have instituted 

electronic loan processing, which now accounts for about a third of 

the applications we received. 

But overall there is a number of issues that still need to be addressed. Many of these problems have built over a number of years. 

They will not be solved in days or weeks, but they will, indeed, be 

solved. 

5 

I look forward to working with the distinguished members of the 

Committee to make that happen, and I look forward to your questions. 

Thank you. 

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

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Mills. 

Our next witness is Mr. Bill Shear, and he is the Director of the 

General Accountability Office, Financial Markets and Community 

Investment. The Financial Markets team works to improve the effectiveness of regulatory oversight in financial and housing markets. It also oversees the management of community development 

programs. 

Mr. Shear, welcome. 

STATEMENT OF WILLIAM SHEAR 

Mr. SHEAR. Thank you. 

Madam Chairwoman, Representative Graves and members of the 

Committee, it is a pleasure to be here today to discuss our work 

at the Small Business Administration. My statement is based on 

our report, Small Business Administration: Additional steps should 

be taken to address reforms to the Disaster Loan Program and improve the application process for future disasters. This report is 

being released at today’s hearing. 

In that this is a general oversight hearing, I also look forward 

to contributing to the discussion at the hearing on other SBA programs. 

After the 2005 Gulf Coast hurricanes, many deficiencies were exposed in the agency’s disaster loan program and demonstrated the 

need for reform. For example, as we state in our February 2007 report, SBA did not engage in or complete comprehensive disaster 

plans before the Gulf Coast hurricanes. 

Since then SBA has taken several steps to reform its disaster 

loan program, which includes creating a online loan application 

and increasing the capacity of its disaster credit management system. 

In June 2008, Congress enacted the Small Business Disaster Response and Loan Improvement Act to expand steps taken by SBA 

and require new measures to ensure that SBA is prepared for future catastrophic disasters. In my statement today, I will summarize the extent to which SBA addressed the requirements of the Act 

and how SBA’s response following the major disasters of 2008 

aligned with key components of its June 2007 disaster recovery 

plan. 

First, with respect to addressing the requirements of the act, as 

of June 2009, SBA met 13 of 26 requirements of the act, partially 

addressed eight, and did not take action on five which are not applicable at this time. SBA officials told GAO the agency has not yet 

completely addressed some provisions that require new regulations 

because to do so, the agency must make extensive changes to current programs or implement new programs. 

For two requirements that will involve private lenders, SBA 

plans to implement pilots before finalizing regulations. SBA has 

6 

not yet addressed the act’s requirements for region specific marketing and outreach, nor has it insured that disaster loan program 

information is readily available to regional entities, such as small 

business development centers. 

By doing so, SBA could leverage the efforts and capacity of local 

resources and emergency management groups, and it could better 

ensure that it and they will be better prepared for future disasters. 

Also, as of June 2009, SBA has not met deadlines to issue an annual report to Congress or an updated disaster response plan. Failure to do so can lead to a lack of transparency on the agency’s 

progress in reforming the program, and it can limit its ability to 

adequately prepare for and respond to disasters. 

Furthermore, SBA did not have an implementation plan for addressing the remaining requirements. 

Second, with respect to SBA’s response to major disasters in 

2008, SBA’s initial response after the 2008 midwest floods and 

Hurricane Ike aligned with certain components of the initial disaster recovery plan, such as using technology and outreach efforts 

to insure timely assistance. The individuals GAO interviewed and 

results from SBA’s 2008 disaster loan program customer satisfaction survey provided some positive feedback about SBA’s performance following these recent disasters. 

However, interviewees and survey results indicated areas for improvement. In particular, both indicated that application paperwork was burdensome, and that the application process needed improvement. 

SBA officials told GAO that they have been taking steps to improve the application process, but did not provide documentation of 

such efforts. As a result, it did not appear to us that SBA has a 

formal process for identifying problems in the application process 

and making needed improvements. 

In our report, we make five recommendations that we think will 

facilitate SBA’s progress in meeting the requirements of the act 

and improve the disaster loan program. 

Madam Chairwoman, it is a privilege to testify before this Committee. I would be pleased to answer any questions on this work 

and other recent work we have conducted at SBA. 

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

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Shear. 

Ms. Mills, Administrator Mills, GAO has recommended that SBA 

conduct unannounced site visits on HUBZone terms, and as you 

are aware, GAO conducted an investigation, and it was not a great 

message from the government to taxpayers and to agencies regarding the responsibility of making sure that taxpayer safeguards are 

in place, to make sure that people are playing by the rule. 

Are you doing unannounced site visits? And how many has your 

agency conducted since GAO made this recommendation in March? 

Ms. MILLS. Yes, Madam Chair, we are making unannounced site 

visits. In the time until the last hearing in March and when this 

report was released, there had been only seven visits in six months. 

Since that time, we have done over 600 in the last four months. 

7 

We are using the data from the site visits to build a risk based 

mechanism in order to see what documentation indicate noncompliance. So we will continue to make unannounced site visits and we 

will continue to work on this mechanism. 

In addition, I believe you are referring to the March 2009 GAO 

report which was very helpful. I just wanted to report back on 

what has been done. There were 19 firms cited. Two had already 

been de-certified when we got the report and one actually was 

okay. Of the remaining 16— 

Chairwoman VELA ́ ZQUEZ. Administrator. 

Ms. MILLS. Yes. 

Chairwoman VELA ́ ZQUEZ. I want to deal with that specific issue 

later. 

Ms. MILLS. Yes. 

Chairwoman VELA ́ ZQUEZ. So allow me to follow my train of 

thought here. 

Mr. Shear, in your report you note that SBA failed to meet several deadlines, some by several months. What were SBA’s explanations for missing deadlines, and how has this affected the agency’s preparedness for large scale disasters? 

Mr. SHEAR. The reasons for not meeting deadlines fall into a few 

different categories. The first one that I will mention is one category that has to do with the coordination with FEMA--where you 

have regulations that have to be coordinated between the agencies- 

-and we were told that coordination was a fairly extensive, cumbersome process, and that was the reason for delay. 

Another category, this is a place where I think one area where 

we just disagree with SBA, we think that the act is clear in calling 

for regional marketing plans and to have plans that are specific to 

the types of disasters that can occur in specific parts of the country, and that is one requirement where it seems there is some disagreement over whether what is already there at the national level 

meets the requirements of that act. So that is one where we just 

have a fundamental disagreement, it seems. 

Some of the others, such as having programs that involve private 

lenders, for those programs SBA wants to conduct pilots before rolling out an actual program to have some experience with the program. That is one where even though SBA has not met the requirements in terms of deadlines, we are fairly sympathetic to because 

from our general work dealing with federal loan insurance and 

guaranty programs, sometimes when you go into a new type of venture, pilots could be very effective. 

Those are some of the examples as far as why there have been 

delays. One of the reasons we made a recommendation that SBA 

should come up with time frames for the implementation of completing the requirements of the act is we think that action will help 

facilitate a certain discipline in terms of getting to where it should 

be. 

Chairwoman VELA ́ ZQUEZ. Ms. Mills, one of the most surprising 

findings of the report is the fact that nearly four years since Hurricane Katrina the agency is still struggling to develop a risk based 

disaster response plan, and as we enter the peak of hurricane season next month, will the SBA continue to rely on a disaster plan 

that is over two years old and that contains obsolete information. 

8 

Ms. MILLS. Now, I presume that you are talking about our annual disaster plans. We submit monthly plans to Congress and assessments of where we are, but we will complete this annual plan. 

We agree that it is dramatically important and overdue, but we 

will complete it. 

Chairwoman VELA ́ ZQUEZ. Do you have a time line? 

And my next question is will that disaster plan, comprehensive 

plan, have the components mandated by the law? 

Ms. MILLS. Yes, it will, and many of these components are in 

place, and I think we need to just get you the plan. 

Chairwoman VELA ́ ZQUEZ. When do you think it will be expected, 

since I mentioned that the hurricane season is coming? 

Ms. MILLS. I will get back to you with an exact date, but we 

promise that we will look to do it as soon as possible. 

I do want to say we want to thank Mr. Shear because these actually have been a very helpful template for us to go through and 

execute these things. So I think we are poised to bring you this report. 

Chairwoman VELA ́ ZQUEZ. But you understand the urgency— 

Ms. MILLS. Yes, I do. 

Chairwoman VELA ́ ZQUEZ. —of having this plan in place before 

the hurricane season is over us. 

Ms. MILLS. Yes, we do, and we actually have the capacity in 

place. So I think it is a matter of the report, which we owe you and 

will get to you. 

Chairwoman VELA ́ ZQUEZ. Administrator Mills, this Committee 

has asked SBA on a number of occasions if it has the resources and 

controls necessary to prevent contracting fraud. In the past, the 

agency has said that they have the resources necessary to prevent 

fraud in the HUBZone Program only to have the GAO to find otherwise. 

So let me ask you today: do you have sufficient resources and internal controls to prevent fraud in the 8(a) program? 

Ms. MILLS. Thank you, Madam Chair. 

The 8(a) program is for small businesses. It is not for big businesses masquerading as small businesses. This has been a concern 

about this program. 

We have done a number of things to begin to make sure that we 

eliminate fraud and abuse and address the issues that have been 

raised. The first is that we have had a strong up-front certification 

program, and a formal certification that is done in two geographic 

areas specializing in this, Philadelphia and San Francisco. 

In addition, we have done some things since our last visit to you 

to specifically invest in this activity. The first is leveraging technology. We have added to our business development management 

information system in order to be able to better track these companies through their nine-year cycle. We are mandated to invest in 

them for business development, and we have two tools. 

Chairwoman VELA ́ ZQUEZ. Administrator, administrator, excuse 

me one second, but I have a lot of other questions, I just want to 

make sure that today you are telling our Committee that you understand that you have the resources and the controls in place and 

necessary to prevent fraud in the 8(a) program. 

9 

Ms. MILLS. We are making investments now in those things. We 

have put in the 2010 budget some additional resources that would 

be very helpful, and we are working on a package of regulatory 

changes which will soon be brought public before you. 

Chairwoman VELA ́ ZQUEZ. The same with the service disabled veteran program. 

Ms. MILLS. Yes, the service disabled veteran program is extremely important, as you know. That is slightly different because 

we need to work in conjunction with the Veterans Administration. 

We have a very important report coming, I think, from the GAO 

to help us work with them. 

I have a meeting with the Veterans Administration to work on 

the issue of their database, which is the database that is the governing database on who is a service disabled veteran. That is critical for this program to only be able to deliver to service disabled 

veterans. 

Chairwoman VELA ́ ZQUEZ. Mr. Shear, given everything that you 

have reviewed in putting together this report, are you comfortable 

that the SBA is prepared to meet the challenges of another natural 

disaster on the scale of Hurricane Katrina? 

Mr. SHEAR. I wish I could give another answer, but do I and do 

we feel comfortable about the question you posed, the answer is no. 

These are some of the reasons why. 

There are certain parts of the requirements in the act that have 

not been met, and among them let me just go back to the disaster 

recovery plan from 2007. At the time it was provided to us, the Administrator proposed it to us as conceptual approach. Part of our 

view in our recommendations to the Administrator and also with 

respect to the act itself, we think strategic planning should be a 

very living document. 

So, for example, there have been disaster simulations that have 

occurred. Yet we do know that simulation is the best thing to do 

to prepare for disasters the size of Katrina. 

Chairwoman VELA ́ ZQUEZ. Mr. Shear, let’s clarify that. That was 

under the previous Administrator. 

Mr. SHEAR. Yes, from the previous Administrator, yes. Thank 

you. 

In terms of the disaster simulations, we know the disaster simulations the agency used in 2008 and they are of catastrophic disasters. Yet what we do not know, and this committee does not 

know is what were the results of those simulations in terms of the 

capacity of the agency to deal with a disaster the size of another 

Hurricane Katrina nor what lessons have been learned from running those simulations. 

So in the absence of some evidence that the agency is in a position of responding, even on a simulation type basis, causes us to 

answer that question in the way we do. 

Chairwoman VELA ́ ZQUEZ. Ms. Mills, I hope that you understand 

that we are here fulfilling our role and our duty of overseeing and 

making sure that things that need to be in place are in place. Hurricane Katrina was a disaster of major proportions where people 

lost their lives, lost their businesses. 

So four years later after that, we need to hear that the GAO feels 

that you have something in place where we can feel comfortable. 

10 

Ms. MILLS. Thank you, Madam Chair. 

And I very much am listening to this issue that you raised about 

the plan. I would like to just mention that we have tactically 

added. Before Hurricane Katrina we had 880 trained staff. We now 

have 2,400 staff and reservists, and our reservists are ready to go 

across the country anyplace that there is a disaster. 

We also used to have 366 work stations and one of the things we 

took from this review that you did which was very helpful is we 

now have 2,100; from 366 to 2,100 work stations in our disaster 

areas of Fort Worth and Surge Seats in Sacramento. 

And we upgraded our management information system so that 

we can do 12,000 concurrent users. So in terms of investing in fixed 

infrastructure, trained people, we are in a very, very different 

place. 

We also reengineered our loan processing system. In the middle 

of Katrina, it took us 85 days to process a loan. We now in any disaster do 14 days for homes and 18 days for businesses, and we are 

piloting some additional programs. 

Chairwoman VELA ́ ZQUEZ. Mr. Shear, do you have any comments? 

Mr. SHEAR. We acknowledge in our report that a lot of progress 

has been made. The types of problems in this program, many of 

them have been addressed, including the expansion in DCMS, 

greater availability of reserves, and the types of things the Administrator is talking about. So we acknowledge these improvements, 

and the program has improved. 

The response to the 2008 disasters, which were much smaller 

than anything on the scale of Katrina, was at least somewhat positive, but we are pointing out do we feel comfortable yet, and there 

are still other pieces that are related to the other provisions in the 

act, and in particular the lessons learned from having gone through 

simulations and other types of exercises that we think are very important to demonstrate the type of preparedness I think we’re all 

looking for. 

Chairwoman VELA ́ ZQUEZ. Thank you. Thank you. 

Mr. Graves. 

Mr. GRAVES. Thank you, Madam Chair. 

Ms. Mills, the Office of Chief Counsel for Advocacy is required 

by statute to monitor agency compliance for the Regulatory Flexibility Act, and given the amount of increased legislation that may 

come from health care reform and from the reduction in greenhouse gases, you know, that responsibility is just going to get even 

greater. 

My question to you is: do you expect that the Chief Counsel is 

not going to continue to monitor agency compliance with the Regulatory Flexibility Act to the same extent that it did under President 

Clinton’s Administration, president Bush’s administration? 

Ms. MILLS. Absolutely, yes. This issue of excess regulation causing cost to small business is a critical mandate not only for the Office of Advocacy, but for all of the SBA, including the Ombudsman’s 

Office, and this is one of the number one concerns for small businesses. So it will be a priority. 

Mr. GRAVES. Mr. Shear, in comparison to other federal agencies, 

how quickly do you think the SBA adopts GAO recommendations 

11 

just compared just to the other agencies you obviously have to deal 

with? 

Mr. SHEAR. That is a difficult question. I am trying to think of 

how to come up with a tactful answer, but I would say over the 

years it has been an agency that has been relatively slow to implement recommendations. I think that the recommendations in the 

Disaster Loan Program from our work back then--where we still 

say there is a way to go--but with respect to expanding the disaster 

credit management system and those recommendations, that was 

a priority, and I think that those were implemented over the course 

of a number of years. 

But you know, there are still remaining recommendations and 

there are many that seem to --what I will call just linger for very 

long periods of time. 

Mr. GRAVES. Would you like to comment on that? 

Ms. MILLS. Yes. Well, we are going to have to change that, Mr. 

Shear, and we are going to have to get into the top end of the good 

performers on that list. 

We are very committed to working in partnership with the GAO 

and with the IG also because if we are going to create a culture 

where there is a real responsiveness on these reports, we find them 

very helpful. They are a very strong road map, and we know we 

can improve these programs on an ongoing basis. So we want to 

be able to change that answer and be at the top end of the responders. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you, Madam Chair and Ranking Member 

Graves, for holding this hearing, and thanks to you, Administrator 

Mills and Mr. Shear, for your attendance today and your testimony 

today. 

I look forward to working closely with all of you to insure that 

waste, fraud, mismanagement and abuse are reduced and ultimately eliminated. While this is being done, we want to be able to 

maximize on the effectiveness of SBA’s fantastic programs which 

serve America’s economic engines, her small businesses. 

Administrator Mills, my first question is for you. I have long 

been a supporter of the SBA’s efforts to create opportunities for 

women and minority, veteran owned businesses, and today I would 

like to focus on women and minority owned businesses and their 

ability to access credit. 

Typically women and minority owned businesses tend to employ 

a more diverse workforce, and this is especially an issue today as 

minority employment is at high levels relative to the rest of the 

country. 

In this vein, I would like to insure that existing programs, such 

as the Women’s Business Centers and other technical assistance 

programs have the capacity and capability to assist minority and 

women owned businesses in identifying finance opportunities. I 

think it is vital that they have the tools they need to serve this important segment of the business population. I think we must maximize the existing resources to insure that the WBCs have what 

they need to help foster our economic recovery. 

Has there been some progress in the area of grant disbursements 

by WBCs? And will you commit to working with me to discover 

12 

methods to increase access to credit for women and minority owned 

small businesses right away? 

Ms. MILLS. Yes, I would be delighted to commit to you to do that. 

The SBA has part of its core mission, and we are three to five 

times more likely than a conventional lender, to lend to women and 

minority owned businesses. So this is really what we do. It is at 

the essence of what we do. 

I am pleased to report to you that in the Recovery Act funding 

20 percent of the loans have gone to minority owned businesses 

and 19 to women owned businesses. We have over 100 women 

owned business centers in our network. We currently have a new 

and very talented and energetic person running these who has conducted regional meetings and has visited all of them and is coming 

back with a lot of ways to improve and help this important constituency, and we are going to execute on that, and I would look 

forward to working with you on it. 

Ms. CLARKE. Thank you, and I want to also draw your attention 

to the HUBZone Program. We are all aware that the HUBZone 

Program encourages small businesses to locate in and hire from the 

nation’s most distressed communities. Given that the focus of this 

hearing is exploring ways to address mismanagement, I would be 

remiss if I did not ask about the progress in the areas of certification of HUBZone firms. 

At a hearing before this Committee in March, GAO testified that 

the SBA fell short in removing certain fraudulent companies from 

HUBZone participation, and this oversight resulted in another 7.2 

million in HUBZone contracts being awarded to those same firms. 

I want to be clear that there is no place in this economic climate 

for fraudulent firms to take opportunities that belong to more deserving entities. 

So would you please comment on the progress in oversight of the 

HUBZone certification/decertification process in order to address 

this imperfection? 

This is a good program, and it should not suffer due to the shortcomings such as the ones that I have described. 

Ms. MILLS. Thank you. 

Yes, we at this moment have initiated a business process reengineering. So that is a full start to finish reengineering with an 

outside firm that is in place on the certification process in 

HUBZone because of the issues that you have described. 

So we have tightened it up. We require more documentation already, but we are also going to do a business process reengineering 

of it. So that is on the certification side. 

In addition, on the continued eligibility, as I responded to the 

Chairwoman, that is where we did the extra 600 visits, and we are 

conducting the risk based analysis to try to find out how to indicate 

where there are issues of fraud or mismanagement. 

In addition, we went after the 19 that were cited in the GAO report. Five voluntarily withdrew. Six were decertified, and six we 

have proposed for decertification. Two are already decertified, and 

one actually is okay. 

Ms. CLARKE. Thank you very much, Madam Chair. I yield back. 

Chairwoman VELA ́ ZQUEZ. Mr. Buchanan. 

13 

Mr. BUCHANAN. Thank you, Madam Chair, for this hearing and 

congratulations on your new opportunity. It is a big job. 

Let me mention small businesses are getting literally killed. 

When I look at what we have done with TARP, and this is not a 

Republican- Democrat thing. I am just looking at the country now. 

All of the big banks, AIG, everybody got a lot of money. Small business was supposed to get something. There was supposed to be 

more credit available. 

There is no credit. I did a town hall meeting with businesses 

about two months ago; had 130 businesses, some in southwest Florida just south of Tampa. We had the SBA there. They did a very 

good job, by the way, in terms of answering questions, but I asked 

in the room how many people can get credit or have access to credit, you know, that do not work with banks? Or how many people 

has it changed their credit. 

Everybody in the room raised their hand. I want you to know I 

have been in business 30 years. I have been on bank boards for 20 

years. We in Florida anyway—every region is different in the country—there is no credit. They might say there is credit, but the reality of it is if you put up a $1 million CD they will lend you $1 

million. 

Small businesses today, in Florida we had in our federation 

137,000 small businesses. They create, I think everybody agrees, 

70, 75 percent of the jobs. We talk a good game, and I think the 

President is committed to small business. I have talked to him personally about that, but we just are not doing anything to get the 

money out there. 

They have no money. They have access to no capital. So I just 

want to say that in general. Banks will tell you that, but they are 

all under pressure. Their own capital base themselves, they are 

trying to all survive. Small banks, little banks, I am talking to 

them. They are not lending any money. 

So what do you say to these small businesses in my community 

and communities across the country that need credit? Because if 

they have no credit, we are going to lose a third of them or a big 

number of them. 

Ms. MILLS. Well, Congressman, I also have been traveling and 

hearing these issues, and I know the Chairwoman has mentioned 

to me as well some of these places that she has gone. We are all 

hearing that small businesses are suffering, and one of the things 

I have to thank you for is that the Recovery Act did actually get 

the formula right because we have been able to leverage with the 

funding that you gave us so far $7 billion into the hands of small 

businesses through the Recovery Act funds, and that is going to 

continue. 

And 750 banks that had stopped lending, they were frozen; they 

were not on our books from October to the start of the Recovery 

Act, but are now back lending. So these are very often community 

banks and other banks, and they are back. Some of them had not 

been in SBA lending since 2007. 

So we are very glad about that. We are going to be working very 

hard to leverage those programs into these places where the lending is frozen. 

14 

In addition, as you know, the President is committed to small 

business, and there are a number of additional programs, many 

discussions going on about how to address this. It is a critical issue 

to resolve for the nation’s economy. 

Mr. BUCHANAN. I am telling you in Florida, and I am sure Nevada and areas that have been really hit hard, all of these banks, 

even though they are getting capital, they are not lending. You 

know, I will be glad to talk to you about this later, but the truth 

of the matter is they are not lending. So these businesses, a lot of 

them are going to end up going out of business. 

I do not understand— 

Chairwoman VELA ́ ZQUEZ. Would the gentleman yield? 

Mr. BUCHANAN. Yes. 

Chairwoman VELA ́ ZQUEZ. One of the issues that we discussed is 

now that, yes, the banks are not lending because the secondary 

market is locked, and so it is important that SBA implement the 

Section 503 and 509. That will help unlock the secondary markets 

so that those banks will have the liquidity to start lending again. 

Do you have like a time line of when those programs will be up 

and running? 

Ms. MILLS. Madam Chair, you are entirely correct, that if the 

secondary market is not functioning, then banks do not lend because they have no place to sell their loan and get the liquidity. 

We have the two programs up there on the time line. The two 

ones you mentioned are still in the light green, and that is why the 

Chairwoman is continuing to mention them to me. 

I will say that the secondary market has recovered. It is back to 

pre- October volumes, and we can give you that data and information. We track it. It happens on a monthly clearing basis. So we 

are back at about 340 million. We have been back there, and there 

is 15 billion of TARP money that stands ready to purchase in the 

secondary market if that gets stuck again. 

But we have committed to execute those programs, and we will 

execute them. 

Chairwoman VELA ́ ZQUEZ. When? 

Ms. MILLS. Three weeks, two weeks. August. 

Chairwoman VELA ́ ZQUEZ. Three weeks. 

Ms. MILLS. Right where they are on that chart. 

Chairwoman VELA ́ ZQUEZ. Thank you for yielding. 

Mr. BUCHANAN. Thank you, Madam Chair. It is a great point. 

Let me just say my thought is if we can give as a country in this 

environment 200 billion, whatever the number, plus all of these 

contingencies to AIG, General Motors 50 billion, why don’t we take 

100 billion, take something significant because that is what it is 

going to take to help these small businesses? 

I am just telling you, and I would love to have you come down 

to our area. I will take you anywhere in Florida. I can tell you a 

lot of these businesses are rolling out of business, and they have 

created a lot of the jobs. I mean, most in our area, our one Chamber, we had 2,600 businesses. Most of them are 20 and 30 employees or less. A lot of them are folding up. They are getting their 

lines of credit pulled. You know, they like to work with SBA. Sometimes it takes too long, but we have got to find a way where they 

empower you, and maybe it sunsets over time, but we need real 

15 

money, real results, and right now we have lost three million jobs. 

This is not one administrative or another or my mind. The reality 

is we have lost three million jobs. These are a lot of working families. 

We have got to get more money out there in good loans that 

make sense right now, and I will just close with that. 

Chairwoman VELA ́ ZQUEZ. Time has expired. Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Madam Chair. Thank you, Secretary Mills. Good to see you again. 

I would like to make an observation first, and then I will have 

a question. 

First, we talked at the luncheon a few months ago, and one of 

the things I have been on this Committee three years, and I have 

noticed that every time we have a new person come in, we would 

ask them these questions, and they would say, ‘‘We are looking into 

that. We are working on that. We are going to do a study on that.’’ 

And three, four, five months later we come back and sometimes 

there was a new person who said, ‘‘I just got on the job, and we 

are looking into that. We are going to study that. I was not there 

then.’’ 

So I wish you a long tenure, and I also say in four or five months 

I hope you say you can show us the progress that we have made 

in there. 

My question would be now that you are new at the job, what are 

a couple of things that you walked in the door, you start peeling 

stuff apart, and have really shocked you and you have said, ‘‘We 

have got to do this right away,’’ either in the fraud mitigation? I 

think you mentioned that in your testimony, some of the waste and 

fraud mitigation efforts you have made. 

And I would like to ask Mr. Shear the same thing when she is 

done. If you had her job, what would you say this is something we 

have to start right now and get done that you would implement on 

day one from your observation of being in the agency? 

So, Ms. Mills, if you will go first and then Mr. Shear. 

Ms. MILLS. Absolutely. I am looking back to just make sure I 

read the same words to you in my opening statement because I am 

on record with the following, which is that many of the problems 

that have been built up over years and that they are not going to 

be solved in a matter of days or weeks, but they will, indeed, be 

solved. 

We have a top management, risk based approach to addressing 

these issues. They are all on our radar. We track every single GAO 

report and IG recommendation. We work our way through them. 

We either agree with them and execute them or we have further 

discussion as to, you know, how we should move forward with 

them. Because we cannot run an agency that is so critical to the 

economy going forward with our $90 billion loan portfolio, with 

being responsible for 23 percent of government contracts going to 

small business, with being responsible for disasters which could be 

catastrophic. 

We cannot execute unless we execute at the highest levels of effectiveness and transparency. So that is the commitment. We are 

working on that. 

16 

I would have to say that what I have found actually on the flip 

side is that we have great people. We have a great team, and we 

have great bone structure. And the secret that I have found is that 

our bone structure is our people and also our partners. 

We have over 4,000 lending partners. We have over 14,000 counselors in our SBDCs and our SCOREs and our Women Business 

Centers. We have a network throughout this whole country where 

we touch businesses. We are within, one person told me, an hour 

to 40 minutes of most businesses with a counselor. 

So we have an important and critical role to play. We are breaking down silos, and that also helps with this waste, fraud and 

abuse because it cannot live in this open, transparent environment, 

and we are working together to bring the power of that entire network to small businesses in order to bring the economy out of the 

recession and give it strength and make it competitive going forward. 

Mr. ELLSWORTH. Mr. Shear, if you were in charge, what is the 

number one thing you would tackle? It may be on the same line. 

Mr. SHEAR. I will make one flippant remark, which is we are not 

supposed to make management decisions. So let me just make 

some observations if you could live with observations. 

As an accountability organization, when we see the what I’ll call 

a complete lack of internal control in fraud prevention in a program like the HUBZone Program, some people might say, ‘‘Well, 

the HUBZone Program is not that important,’’ but whenever we 

look at anything in government dealing with HUBZone or contracting programs, internal control and fraud prevention is something that, as an audit agency, something that we think is very important to address and address aggressively for these programs to 

work. 

With respect to the Capital Access Programs, this I will make a 

statement just because it is such a big part of what SBA does, and 

it is such an even more important part now, now that we have the 

credit crisis that faces us. 

Over the years, among the things we have recommended is that 

in running its programs where SBA is delegating authority to lenders and SBA is so compliance oriented, and compliance is good, but 

SBA does not get into questions as far as how are those lenders 

using the authority SBA is granting to them. Are they meeting the 

intent of the program? 

So as we go forward, for example, now in looking at the Recovery 

Act, we say can SBA step back and become more evaluative in the 

way it manages its capital access programs so SBA can help figure 

out how to implement different provisions that are to meet an intent in the credit markets where you are relying on private lenders 

to carry out certain authorities. So that would be the second area. 

The third area I would point out and as an audit agency, we do 

not make recommendations to either increase or decrease any 

agency’s budget. I mean, we are just not in that business. It is a 

congressional prerogative. 

But with SBA over the last few years, at a minimum we always 

are asking a budget-related question in your entrepreneurial development programs like Women’s Business Centers, in running varVerDate Aug 31 2005 11:12 Dec 10, 2009 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51035.TXT DARIEN
17 

ious programs, including the contracting programs, including 8(a), 

do you have the resources needed in place? 

So what we tend to look for is some type of strategic planning. 

What do you need to get the job done? 

So those are the three areas I would point out. 

Chairwoman VELA ́ ZQUEZ. Mr. Shear, and to have all of those 

things in place, the agency will need resources because when Mr. 

Graves addressed the question to you about how does this agency 

compare to other agencies, we have to answer the way you answer 

it, but also take into account that this is the agency where for the 

last six, seven years the budget was cut by almost 40 percent. That 

is another element that we need to factor in. 

Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Madam Chair. 

Ms. Mills, the Committee has heard that you and your staff have 

been approving contracts requested by the Office of Inspector General, and we are concerned that this could interfere with an ongoing investigation in violation of the Inspector General statute. Are 

you approving contracts requested by the Inspector General’s Office? 

And, if you are, how are you ensuring that there is no interference with the ongoing investigation of the Inspector General’s 

Office? 

Ms. MILLS. So the question is are we approving contracts, and 

maybe you could clarify what sort of contracts. 

Mr. LUETKEMEYER. Dealing with the Inspector General. Can you 

explain the relationship first, I guess, and maybe we can go from 

there? 

Ms. MILLS. Yes. The Inspector General is an independent actor 

in the agency. They are funded independently. They are very active 

and work separately from us but we hope collegially and in partnership. We provide information as requested. 

Mr. LUETKEMEYER. Do you work together in any sort of contractual obligations? 

Ms. MILLS. Not to my understanding, but I am happy to get back 

to you with an answer on that for the record. 

Mr. LUETKEMEYER. Okay. That is fine. 

A while ago you mentioned something about you were looking at 

a number of programs based on a risk-based approach. Can you explain to me what your description of and how you would determine 

a risk-based approach? 

Ms. MILLS. Yes. There are two times, I think I mentioned that. 

One, overall we have a senior risk team that looks at a number of 

things because although we have small risk teams that go program 

by program, we are now looking more on a comprehensive basis on 

a senior level about how much risk are we taking on in various aspects of what we do. 

And consciously, for instance, in the ARC program there may be 

a mandate or we may decide that a program should be a higher 

risk program. We should do that consciously. 

Mr. LUETKEMEYER. I assume when you are talking about risk, 

you are talking about how you discern, how you evaluate a loan application and whether you are willing to look at, say, somebody 

18 

who is less financially able or less financially stable. Is that where 

you are going with this? 

Ms. MILLS. So, for instance, the ARC Loan Program that is part 

of the Recovery Act is a much riskier program than the SBA usually does in its profile, and we expect very high default rates from 

that program, but it is a very important program for this particular 

time. It is for viable businesses who are experiencing some difficulty, but it is a bridge over troubled water for them. 

So we are making a conscious assessment that that is a program 

where we are executing as part of the Recovery Act, but it is also 

a program that is not within our normal risk profile. So that is one 

of the risk assessments. 

Mr. LUETKEMEYER. At what point do you pull back on a program 

if you feel it is becoming too risky? 

Ms. MILLS. Well, we set the parameters in the beginning. 

Mr. LUETKEMEYER. What are your parameters? 

Ms. MILLS. About what the default rates will be. We work a 

model— 

Mr. LUETKEMEYER. What are your default rate specifications? 

Ms. MILLS. The default rate specification was in a model that we 

built with OMB, and it is quite high. it is over 60 percent for the 

ARC loans, and that is well beyond what we have in any of our 

other programs. So our expectation is, you know, that is what we 

will get. 

Mr. LUETKEMEYER. Okay. Just one final comment here. Mr. 

Shear also made the same comment, and we got a question here 

I was wanting to ask also. A couple of weeks ago we had a group 

in here that talked about the amount of paperwork that is involved 

in the 7(a) program, and Mr. Shear made the same comment a 

minute ago, that it was so cumbersome that many of the people 

were refusing to participate because of that. 

Have you looked into that at all or do you have any plans or is 

it on your radar at all to try and do something about the paperwork? 

My family is in the banking business. I used to do this. It is horrible, absolutely horrible, and to go through this process, and a 

minute ago you made a comment that you on your Disaster Relief 

Program here went from 14 days to 18 days. I just wish that it was 

14 days on an SBA bank loan. 

Ms. MILLS. Well, actually it is less on an SBA bank loan. I believe it is under seven business days, five to seven days— 

Mr. LUETKEMEYER. Not in my area, but that is fine. Go ahead. 

Ms. MILLS. —for an SBA bank loan, but that is because since we 

have done process reengineering. That is a continuous task. I am 

a big advocate of process reengineering, and we need to make these 

programs effective and efficient for the borrower while maintaining 

the oversight and getting the information and calculating the information we need so that we have good loans. 

But we have significantly reduced the turnaround time and made 

the process much more friendly for the bank and the borrower. 

Mr. LUETKEMEYER. That did not sound like a commitment to me. 

Are you going to make us a commitment that you are going to look 

at the 7(a) program and fine-tune that? 

Ms. MILLS. Yes, I am. 

19 

Mr. LUETKEMEYER. Thank you very much. 

I yield back. Thank you, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Mr. Moore. 

Mr. MOORE. Thank you, Madam Chair. 

On July 1st, I hosted a forum in my district for small business 

owners to discuss access to capital. I have heard from many of my 

constituents, and I can tell you that there is a great deal of demand for these ARC loans, but last week the Finance and Tax Subcommittee held a hearing on access to capital, and witnesses testified there are very few banks actually making ARC loans. 

I know in the Kansas City area, and I am on the Kansas side, 

but in the whole Kansas City metropolitan area fewer than a dozen 

of these loans have been made and issued throughout the entire 

metropolitan area. 

One witness last week made the important point, I think, that 

there is really no incentive for banks to make ARC loans. There is 

no secondary market in paper work and reg requirements are just 

as stringent as they are for 7(a) or 504 loans which offer businesses 

far more than just $35,000. 

What, if anything, can SBA do to make these loans more attractive to lenders and get the process moving? 

Ms. MILLS. Thank you. 

ARC loans, now we have over 300 lenders. We are lending in 47 

states. We are on track to have a limited number of ARC loans 

available. There will be approximately 10,000 before the funding 

runs out, and it is likely that demand will greatly exceed supply. 

We trained 1,300 lenders in the first week on the call, and lenders have no risk. It is 100 percent guaranteed by the bank, and 

they do make a profit because although the borrower pays no interest, the SBA funds the interest. 

Mr. MOORE. I yield back, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Ms. Bean. 

Ms. BEAN. Thank you, Madam Chair. 

And thank you both for testifying today and sharing your expertise. 

Administrator Mills, I want to commend your leadership at the 

SBA. We have seen a real rebound in the secondary market. We 

are seeing increased lending participation from new lenders, lending activity in terms of loans and amounts being lent. So important 

to the small business community as we try to ease the credit 

crunch from limiting their access to capital. 

But you also talked about process reengineering. I know from our 

past conversations you are one very committed to continuous improvement. There are some lenders where there needs to be trust 

rebuilt between the SBA and those lenders because of something 

in the history that may be undermined that. 

What comments would you share that you are doing to help rebuild those relationships where there are lenders who are not participating but who could be participating, whether it be the ARC 

loans, 7(a), or other SBA lending programs? 

And before you answer, I also do want to acknowledge I worked 

with some of your folks in Chicago. Senator Durbin and I held a 

forum about not just the roll-out of the ARC lending program, but 

some of the other things going on to stimulate the secondary marVerDate Aug 31 2005 11:12 Dec 10, 2009 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\51035.TXT DARIEN
20 

ket, and it was very well received, and your folks did a really good 

job. 

Ms. MILLS. Well, thank you very much. 

It is very important that we rebuild and that we build, continue 

to build our relationships with our lenders. Let me just tell you 

quickly two things. One is transparency. We are making sure that 

lenders know how they are rated in our lender oversight system, 

and that was something of concern to them. 

And we also are continuing our programs, our preferred lender 

programs and our delegated authority programs. Once we have experience with a lender, we are able to do various things, let them 

use their own paperwork, let them make their own decisions, and 

then we monitor them, and we find that our best lenders end up 

in those programs, and it is something that then we have a very 

good, transparent and trustful relationship between us. 

Thank you. 

Ms. BEAN. Thank you so much. 

I yield back. 

Chairwoman VELA ́ ZQUEZ. Mr. Graves. 

Mr. GRAVES. I do have another question, Madam Chair. 

Administrator Mills, we are concerned not only about the amount 

of time it takes to implement recommendations, for instance, from 

the GAO, but we are also concerned about how much time it takes 

to implement things required by law. You know, we talked a lot 

about the ARC Program, and we know for a fact that it was supposed to be implemented within 15 days of enactment, which would 

have been March 2nd. It took until June 15th. We do not know if 

that was because of a specific provision in the law or if it was because of other diversions. 

But my question to you is I would like a commitment from you 

that the agency is going to implement programs that are required 

by law before implementing some of the pilot programs that you 

are working on like the Floor Plan Financing Initiative and some 

of the other things. We would like to hear you say that you will 

do those things that are required or that Congress has passed before doing some of the other diversions. 

Ms. MILLS. Well, I very much am committed to those things that 

are required by law, and these Recovery Act things are our top priority list. 

I do want to tell you that we did the ARC loan. The reason for 

the time in the ARC loan is what I mentioned in my opening statement, that this was a risk profile that was very, very much higher 

than the standard risk profile that the agency takes on, and that 

is what took the time to create the risk mitigation that would allow 

us to go out and make these loans appropriately. 

But the second thing is the dealer floor plan. The Chairman had 

mentioned to me the same issue, and you mentioned to me that 

issue, and we did sequence them because that was the right thing 

to do behind ARC. 

Chairwoman VELA ́ ZQUEZ. Ms. Mills, we are concerned about the 

fact that there are certain provisions that the Congress passed requiring SBA to issue regulations and to get those programs up and 

running. In answering your question to Mr. Graves, you mentioned 

that those were high risk and so you needed to act cautiously. 

21 

My question to you: floor financing is not risk? 

Ms. MILLS. The floor financing risk profile is the same risk profile as the standard 7(a) risk profile. So that is how it was constructed. 

Chairwoman VELA ́ ZQUEZ. Okay. I want to go with you over some 

of the provisions that we passed, and this happened when you were 

not the administrator. I just want to make sure that you tell us 

your intention and commitment to get those provisions up and running. 

For example, in the Energy Independence and Security Act, this 

includes the Energy Efficiency Technology Loan Program and the 

Renewable Fuel Capital Investment Company. Those provisions 

have not been implemented. 

In the Military Service and Veterans Small Business Reauthorization and Opportunity Act of 2008, this includes Section 105, increasing the number of veteran outreach centers, has not been implemented. 

Section 106, study regarding gaps in availability of outreach centers, and Section 208, the Veterans Loan Program, have not been 

implemented, and these initiatives are in excess of two years. 

So can you tell this Committee when the agency will have each 

of these provisions up and running? 

Ms. MILLS. Well, absolutely we are committed to executing those 

things that you give us to execute. I would like to take the opportunity to come back to you on each of those specific ones and make 

a timetable so that you can know when to expect it, and if there 

are any issues why we are not able to do it, we would say so at 

that time. But at this point I think we need to commit to you to 

come back to you with what an implementation time and plan for 

each of those is because they need to be done. 

Chairwoman VELA ́ ZQUEZ. Yes, and if there is anything that the 

Committee needs to do, then that should be part of the legislative 

package that the administration should be sending to us. 

The map of HUBZone eligibility is what the agency and firms 

use to determine if they can participate. When was the last time 

that your agency updated its HUBZone map? 

Ms. MILLS. The last time the map was updated was last fall. It 

will be updated again this fall. 

Chairwoman VELA ́ ZQUEZ. Ms. Mills, the SBA’s latest budget requests nine million for operating the HUBZone Program, and I am 

going back to the HUBZone Program because it has taken a lot of 

time to implement some of the recommendations that the Government Accountability Office included in its report. 

For operating the HUBZone Program, this worked out to about 

700 to 900 per participant in the program. While that seems significant, GAO examined 52 firms in the program and found over 

half, 29, were ineligible. So what are taxpayers getting for their $9 million and what are 

you going to do about it? 

Ms. MILLS. Well, as you know, 10.8 billion went to HUBZone 

firms, and that is about 11,000 firms, and the specifications are 

that you have to be a U.S. citizen. You have to be a small business. 

You have to have your principal office in the HUBZone, and you 

have to employ 35 percent of your workers inside this HUBZone. 

22 

We are, as you know, in the process of executing some oversight 

improvements in order to make sure that those criteria are met up 

front in the certification and that those firms remain eligible. And 

that is where we are doing the site visits, and that is where we 

plan to improve our processes. 

And we need to get that program to a place where we have a better outcome from Mr. Shear. 

Chairwoman VELA ́ ZQUEZ. Administrator Mills, I will request 

from you that you submit to the Committee the following specific 

time frames for when the SBA will have implemented the following 

items: an updated written disaster plan that integrates regional 

marketing information, that distinguishes the agency response to a 

hurricane in Florida, and in California; the bridge loan programs 

mandated by the act; the annual report to Congress on disaster assistance. And I would like to have those time frames and responses 

in our offices in two weeks. 

Ms. MILLS. Yes, we can do that. 

Chairwoman VELA ́ ZQUEZ. With that the witnesses are dismissed, 

and I take this opportunity to really thank you for joining us today. 

Ms. MILLS. Thank you, Madam Chair. 

Mr. SHEAR. Thank you very much. 

[Whereupon, at 3:12 p.m., the Committee meeting was concluded.] 

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