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| <title> - SHUTDOWN LESSONS: SBA CAPITAL ACCESS PROGRAMS</title> | |
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| [House Hearing, 116 Congress] | |
| [From the U.S. Government Publishing Office] | |
| SHUTDOWN LESSONS: SBA CAPITAL ACCESS PROGRAMS | |
| ======================================================================= | |
| HEARING | |
| BEFORE THE | |
| SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS | |
| OF THE | |
| COMMITTEE ON SMALL BUSINESS | |
| UNITED STATES | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED SIXTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD | |
| FEBRUARY 26, 2019 | |
| __________ | |
| [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] | |
| Small Business Committee Document Number 116-004 | |
| Available via the GPO Website: www.govinfo.gov | |
| __________ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 34-741 WASHINGTON : 2019 | |
| ----------------------------------------------------------------------------------- | |
| For sale by the Superintendent of Documents, U.S. Government Publishing Office, | |
| http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, | |
| U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).E-mail, | |
| <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="d8bfa8b798bbadabacb0bdb4a8f6bbb7b5">[email protected]</a>. | |
| HOUSE COMMITTEE ON SMALL BUSINESS | |
| NYDIA VELAZQUEZ, New York, Chairwoman | |
| ABBY FINKENAUER, Iowa | |
| ANDY KIM, New Jersey | |
| SHARICE DAVIDS, Kansas | |
| JARED GOLDEN, Maine | |
| JASON CROW, Colorado | |
| JUDY CHU, California | |
| MARC VEASEY, Texas | |
| DWIGHT EVANS, Pennsylvania | |
| BRAD SCHNEIDER, Illinois | |
| ADRIANO ESPAILLAT, New York | |
| ANTONIO DELGADO, New York | |
| CHRISSY HOULAHAN, Pennsylvania | |
| VACANT | |
| STEVE CHABOT, Ohio, Ranking Member | |
| AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member | |
| TRENT KELLY, Mississippi | |
| TROY BALDERSON, Ohio | |
| KEVIN HERN, Oklahoma | |
| JIM HAGEDORN, Minnesota | |
| PETE STAUBER, Minnesota | |
| TIM BURCHETT, Tennessee | |
| ROSS SPANO, Florida | |
| JOHN JOYCE, Pennsylvania | |
| Adam Minehardt, Majority Staff Director | |
| Melissa Jung, Majority Deputy Staff Director and Chief Counsel | |
| Kevin Fitzpatrick, Staff Director | |
| C O N T E N T S | |
| OPENING STATEMENTS | |
| Page | |
| Hon. Judy Chu.................................................... 1 | |
| Hon. Ross Spano.................................................. 2 | |
| WITNESS | |
| Mr. William M. Manger, Associate Administrator, Office of Capital | |
| Access, United States Small Business Administration, | |
| Washington, DC................................................. 3 | |
| APPENDIX | |
| Prepared Statement: | |
| Mr. William M. Manger, Associate Administrator, Office of | |
| Capital Access, United States Small Business | |
| Administration, Washington, DC............................. 11 | |
| Questions for the Record: | |
| None. | |
| Answers for the Record: | |
| None. | |
| Additional Material for the Record: | |
| None. | |
| SHUTDOWN LESSONS: SBA CAPITAL ACCESS PROGRAMS | |
| ---------- | |
| TUESDAY, FEBRUARY 26, 2019 | |
| House of Representatives, | |
| Committee on Small Business, | |
| Subcommittee on Investigations, | |
| Oversight, and Regulations, | |
| Washington, DC. | |
| The Subcommittee met, pursuant to call, at 10:01 a.m., in | |
| Room 2360, Rayburn House Office Building, Hon. Judy Chu | |
| [chairwoman of the Subcommittee] presiding. | |
| Present: Representatives Chu, Burchett, and Spano. | |
| Chairwoman CHU. Well, good morning. The committee will come | |
| to order. We thank everyone for joining us this morning, and I | |
| want to especially thank our witness for being here today. | |
| The recent government shutdown was an acutely painful | |
| experience for our Nation's small businesses. It was 35 days of | |
| missed paychecks, delayed loans, and strained budgets for too | |
| many of our Federal employees, contractors, and small business | |
| owners. Perhaps most concerning to small firms was the she | |
| uncertainty of how long the shutdown would last. | |
| Though the government is now back open, the damage to our | |
| economy is lasting. During the shutdown, so many entrepreneurs | |
| and small business employees took extraordinary measures to | |
| make ends meet, and they are still fighting to get back on | |
| their own two feet. It is clear that no business or family | |
| should be put in this position. Not only were business owners | |
| feeling the pain, several Federal agencies had to plan for the | |
| worst and cease operations, and the Small Business | |
| Administration was one of them. | |
| Ironically, the one Federal agency with the sole | |
| responsibility of helping small firms was in the position of | |
| not being able to do its job. The shutdown forced SBA to | |
| suspend many of its critical services, including the processing | |
| and approval of small business loans. This included the Office | |
| of Capital Access and loans made under SBA's 7(a), 504, and | |
| Microloan programs. As a result, SBA could not approve loans | |
| that were already within the SBA system, nor could they take on | |
| any new loans. This essentially froze all SBA-backed lending | |
| activities for 35 days. | |
| The good news is that the government is back open again, | |
| and SBA is back to processing and approving loans for small | |
| businesses. Yet, I know the agency has much to do in order to | |
| adequately ensure the stability of small business financing. | |
| Today's hearing gives us the opportunity to hear from | |
| Associate Administrator for the Office of Capital Access, Bill | |
| Manger, about how he and his office handled the prospect of a | |
| protracted lapse in appropriations, the challenges that he and | |
| his team faced upon reopening, and what guidance the office | |
| gave borrowers and lenders seeking loan guarantees during the | |
| shutdown. | |
| It is important we understand the extent of economic | |
| injuries caused to entrepreneurs as they sought capital, many | |
| of whom rely specifically on SBA loans because they have had | |
| trouble securing affordable credit elsewhere. | |
| I look forward to today's hearing, and I thank Mr. Manger | |
| for testifying. I would now like to yield of the Ranking Member | |
| of the subcommittee, Mr. Spano, for his opening statement. | |
| Mr. SPANO. Thank you so much, Madam Chair. It is a | |
| privilege to serve with you on the committee. And I look | |
| forward to supporting you, and I look forward to a very, very | |
| productive term here serving with you on this committee. | |
| Thank you, Madam Chair, again. Small businesses are coming | |
| off a banner year of increased optimism levels and confidence | |
| scores. From investing in their businesses, their workers, and | |
| their communities, the Nation's smallest firms were busy in | |
| 2018. Positive economic news has continued in 2019 with U.S. | |
| unemployment near record lows, real wage growth, and wage gains | |
| across the Nation. | |
| But despite these trends, small businesses, entrepreneurs, | |
| and startups still face headwinds when it comes to financing | |
| their endeavors. Landing a conventional or traditional bank | |
| loan is often out of reach for them; thus, putting their | |
| American dream on hold. With all other options exhausted, small | |
| businesses have the ability to turn to the Small Business | |
| Administration, and there are many capital access programs to | |
| assist with financing needs. | |
| Unfortunately, last month's partial government shutdown | |
| halted many of SBA's programs and created a buildup of loans | |
| waiting to be processed. With SBA again up and running, I look | |
| forward to today's hearing focusing on SBA's Office of Capital | |
| Access. The Office of Capital Access administers some of SBA's | |
| most important government guaranteed programs including the | |
| 7(a) loan program, the 504/CDC loan program, and the Microloan | |
| program. All three of these programs partner with financial | |
| institutions to deliver assistance to creditworthy firms that | |
| cannot access traditional or conventional lending markets. Due | |
| to lender fees in the programs, many of them are and have been | |
| running at zero cost to the American taxpayer. | |
| Combined, these programs support hundreds of thousands of | |
| jobs on an annual basis. From my home State of Florida which is | |
| approximately 3.3 million individuals employed in the small | |
| business sector to Ohio and beyond, these jobs are transforming | |
| the country's economy. | |
| I look forward to hearing from the Associate Administrator | |
| regarding the operating plans that they have in place during | |
| and after a government shutdown, and additionally, I am looking | |
| forward to an open discussion on other matters in SBA's lending | |
| world in 2019. | |
| In my humble opinion, Congress must continue to create an | |
| environment where small businesses, entrepreneurs, and startups | |
| can flourish, grow, and create jobs. Simply put, when they are | |
| moving forward, so is the American economy. | |
| Thank you, Madam Chairwoman, and I yield back. | |
| Chairwoman CHU. Thank you, Mr. Spano. And if Committee | |
| Members have an opening statement prepared, we would ask that | |
| they submit it for the record. | |
| I would like to take a minute to explain the time rules. | |
| Mr. Manger will get 5 minutes to testify. Each Member gets 5 | |
| minutes for questioning. There is a lighting system to assist | |
| you. The green light will be on when you begin, and the yellow | |
| light will come on when you have 1 minute remaining. The red | |
| light will come on when you are out of time, and we ask that | |
| you stay within that timeframe to the best of your ability. | |
| I would like to now introduce our only witness today, Mr. | |
| William Manger. Mr. Manger is the Associate Administrator for | |
| the Office of Capital Access at SBA. He has held this role | |
| since March 2017 and is responsible for the SBA's loan program | |
| policy, technology, operations, and oversight. | |
| Prior to his current SBA appointment, Mr. Manger served as | |
| Managing Director at Brock Capital Group, a boutique investment | |
| bank in New York City, where he advised and supported small to | |
| medium-size enterprises in their efforts to raise capital and | |
| expand their businesses. From 2007 to 2009, he served as | |
| Associate Administrator for Field Operations at SBA. Mr. Manger | |
| holds an MBA from the Columbia Business School and a BA from | |
| Trinity College in Hartford, Connecticut. | |
| Welcome, Mr. Manger. You are now recognized for 5 minutes. | |
| STATEMENT OF WILLIAM M. MANGER, ASSOCIATE ADMINISTRATOR, OFFICE | |
| OF CAPITAL ACCESS, UNITED STATES SMALL BUSINESS ADMINISTRATION | |
| Mr. MANGER. Thank you, Chairman Chu, and Ranking Member | |
| Spano and Members of the Subcommittee. I appreciate the | |
| opportunity to testify today about the recent Federal funding | |
| lapse and the status of our SBA lending programs. With several | |
| new Members on the Subcommittee and before discussing the | |
| lapse, I thought it might be helpful to talk briefly about SBA | |
| and the Office of Capital Access. | |
| As many of you know, the SBA provides tools and resources | |
| that are of great value to America's 30 million small | |
| businesses. SBA's programs have been helping small businesses | |
| get on their feet and grow since our inception in 1953. Our job | |
| in the Office of Capital Access is to administer programs that | |
| make capital available to entrepreneurs who would otherwise be | |
| unable to access capital through conventional means. | |
| While the SBA works with lenders to provide loans to small | |
| businesses, the agency doesn't lend money directly to small | |
| business owners. Rather, we reduce risk for lenders through | |
| loan guarantees. These lending programs, however, were closed | |
| during the lapse in appropriations. For a total of 20 full | |
| business lending days, SBA was unable to approve loans and was | |
| not able to accept new loan applications. Throughout the lapse, | |
| we posted a notice on our financial system, and I engaged | |
| industry as needed to respond to questions. | |
| We also closely examined our program functions to make sure | |
| we complied with the Antideficiency Act. While most routine | |
| activity in the Office of Capital Access ceased to operate, a | |
| few excepted and exempt operations were functional. These | |
| included the administrative closing of certain previously | |
| approved and obligated 504 loans, limited lender oversight and | |
| risk management of our loan portfolio, Microloans through the | |
| intermediaries since they had already received funding, | |
| disaster loan processing through our servicing centers, and our | |
| online lender match platform which automatically matches small | |
| businesses seeking financing with SBA approved lenders. | |
| Once funding was restored for SBA operations, our loan | |
| systems were immediately operational, and we published an | |
| information notice to notify all lenders that SBA was open for | |
| business. As a result of process improvements put in place by | |
| Administrator Linda McMahon, our ability to get back to | |
| business was greatly enhanced. For example, by the end of 2018, | |
| we had cut in half the time it takes to process and approve | |
| loan applications. These developments played a key role in | |
| dealing with the volume of applications once our systems were | |
| again open. | |
| To provide you an update on that progress, as of this past | |
| Friday, SBA has now approved over 7900 loans for a total of | |
| $3.7 billion since we resumed operations on Monday, January 28. | |
| I am very proud of the hard work and dedication of our SBA | |
| employees. Through their efforts, we are now back to pre-lapse | |
| levels in all of our lending categories. This includes loan | |
| origination, and loan modifications in our 7(a) and 504 | |
| programs. | |
| I also want to share with the committee some action that we | |
| took in response to your February 12 hearing regarding the | |
| funding lapse. In that hearing, the committee heard from a | |
| local brewing company who was interested in expanding their | |
| operations through an SBA loan guarantee. At the time of the | |
| hearing, however, SBA has not received any paperwork from them. | |
| And in response to that hearing, our staff reached out to that | |
| company. I wanted to let you know that we have since received | |
| their request and approved their loan modification. | |
| Madam Chair and Members of the Subcommittee, thank you | |
| again for inviting me to testify. I look forward to your | |
| questions and continuing to work together on behalf of small | |
| businesses across the country. Thank you. | |
| Chairwoman CHU. Thank you, Mr. Manger. I will begin by | |
| recognizing myself for 5 minutes. | |
| Mr. Manger, the shutdown essentially froze all SBA-backed | |
| lending, but many loan applications had already been submitted | |
| to SBA prior to the shutdown and were pending review when the | |
| government shutdown began. At the same time, lenders continued | |
| submitting loan applications to SBA for approval during the | |
| shutdown. This means that there were two sets of pending loan | |
| applications, those that were submitted pre-shutdown and those | |
| submitted during the shutdown. In total, how many such loan | |
| applications were pending when SBA reopened? | |
| Mr. MANGER. Madam Chairwoman, so when the lapse in | |
| appropriations took place at midnight on the 21st of December | |
| or the 22nd of December, we had probably about a couple hundred | |
| loans that had come in on a non-delegated basis. But just so | |
| you understand, most of our loans, over 80 percent of our 7(a) | |
| loans come in on a delegated basis. That means they come into | |
| our electronic system and are funded in real-time. In fact, in | |
| a matter of seconds. | |
| So that is the majority of our 7(a) which is our largest | |
| program. Those that did not come in on a delegated basis, that | |
| come into our centers on a non-delegated basis to be reviewed | |
| by SBA staff, we had probably a couple hundred, and those we | |
| were unable to process at that time. | |
| In the 504 program, though, the way the 504 program | |
| operates, we actually approve and obligate the funding of those | |
| loans when the loan application comes into our system. So what | |
| we did during the shutdown is we had some excepted employees | |
| that were able to close 504 loans that had come in prior to the | |
| lapse in appropriations that had been already approved and | |
| obligated, so those were taken care of. | |
| In terms of those that came in during the shutdown, we | |
| turned our system off, our CAFS, our central service system | |
| off, when the shutdown took effect. So actually, there were no | |
| loans coming into a queue during the shutdown. Once the funding | |
| had been restored and the lapse was over in January, we | |
| reopened that Monday morning, the 28th of January, with the | |
| funding that we had on the CR, and all the loans then that came | |
| in at that point were handled. | |
| So really, there was no backlog of loans in the system | |
| because the system actually had been shut down. | |
| Chairwoman CHU. But you did have some that were non- | |
| delegated. So how did your office strategically work through | |
| this backlog of loans? For example, did you prioritize by date, | |
| loan amount, or some other factor? | |
| Mr. MANGER. So what we did was we did do it on a first in, | |
| first out basis, FIFO basis. We did also, in our information | |
| notice, that we sent out to the public once we reopened in | |
| January, we said to our lending partners that if there was an | |
| urgent loan that needed to be taken care of because the | |
| applicant was up against a deadline, they had a way to send an | |
| email to our center. That loan would be specifically | |
| prioritized, which we did in several instances where the | |
| borrower was up against a deadline that needed to be met. | |
| So once we reopened, again, we brought on some additional | |
| resources, and we were able to work through the huge volume. I | |
| mean, $3.7 billion since January 28 is pretty spectacular. And | |
| all of those have been approved. And in fact, the different | |
| categories for loan modifications, we are down now to pre-lapse | |
| levels, and we were able to do that within 4 weeks. | |
| Chairwoman CHU. So as a result of the shutdown, small | |
| businesses were in dire need of financing because SBA lending | |
| programs were not available. And you said that for those 4 | |
| weeks, that basically shut down the loan application process. | |
| When you opened up again, did you see an uptick in loan | |
| applications? | |
| Mr. MANGER. Absolutely. We had a tremendous amount of | |
| volume come in in the first several days, and it actually has | |
| remained high. We have now come back actually a little bit | |
| stronger than the position we had been pre-lapse, so you know, | |
| we have seen an incredible increase in our lending over the | |
| last month. | |
| Chairwoman CHU. Let me also ask. Is there any way to | |
| insulate lending programs from being frozen due to a lapse in | |
| appropriations and to be able to have other entities be able to | |
| take over this process of lending if there is such a shutdown? | |
| Mr. MANGER. So Chairwoman Chu, because of the Anti- | |
| deficiency Act, we are prohibited from putting guarantees on | |
| the loans as we usually do. We would be encumbering assets of | |
| the Federal Government that we didn't have a right or | |
| authorization to do. And so, because of the Antideficiency Act, | |
| we were unable to make new loans during the lapse in | |
| appropriations. | |
| I do want to point out that the one program that actually | |
| was still up and running during the lapse in appropriations | |
| was, in fact, the Microloan program. The way the Microloan | |
| programs works, it is actually a program where we make a loan | |
| to a not-for-profit lending intermediary who in turn makes the | |
| loan to the small business. | |
| Much of the authorization and the appropriation for those | |
| microlenders had been made to the lenders prior to the lapse in | |
| appropriations, so they already had money that they then could | |
| loan to the small businesses. And during the lapse in | |
| appropriations, our microlending partners were continuing to | |
| make microloans. | |
| And in fact, our Microloan program this year is doing | |
| extremely well. We are up 3.5 percent over last year's record. | |
| We have had a record in that program recently, and I am very | |
| pleased to tell you some of the statistics on that program; it | |
| is doing extremely well. In fact, in the last year we have | |
| increased our lending to African Americans in that program by 5 | |
| percentage points, 33 percent used to be what we would lend in | |
| that program to African Americans. This past year, it has gone | |
| up to 38 percent, so we are very pleased with the performance | |
| of the Microloan program. | |
| Chairwoman CHU. Well, thank goodness for that. Well, my | |
| time has now expired. The Ranking Member, Mr. Spano, is now | |
| recognized for 5 minutes. | |
| Mr. SPANO. Thank you, Madam Chair. Thank you, Mr. Manger, | |
| for coming, and thank you for your testimony, and thank you for | |
| your very good work with the programs. And kudos to you for | |
| getting the program up and going so quickly, for getting caught | |
| up, and thank you for providing us regular updates as to the | |
| status of that process, and we appreciate that very much. | |
| I have a few questions. It has been a busy couple of | |
| months, obviously. Can you share with us what your office has | |
| planned for the remaining part of the fiscal year, calendar | |
| year? Do you anticipate rolling out any new policy notices, | |
| SOPs or other regulations? And also, if so, can you provide a | |
| timeline and details? | |
| Mr. MANGER. Sure. Thank you very much for that question. So | |
| in fact, just last week, we rolled out an update to our SOP. It | |
| is SOP 50 10 5K, and so it was following on from the J that had | |
| been launched last year. We try and have updates to that | |
| program on an annual basis if we can to keep up with the | |
| market. And again, we launched--we introduced it, but it does | |
| not take effect until April 1, so it gives us time and our | |
| lenders time to adjust to any of the changes in the SOP for 45 | |
| days. And again, we will be out, you know, providing classes | |
| and webinars with the lenders prior to the April 1, you know, | |
| effective date. | |
| We also currently have a rulemaking that is in process. | |
| This was actually primarily to promulgate rules for our Express | |
| program which has existed actually for 20 years and has never | |
| operated on rules. It was only operating on SOP, and that is | |
| not good policy. So one of the first things I did when I came | |
| into this position was say we need to promulgate rules for the | |
| Express program because all of the programs should be operating | |
| under regulation and not just SOP. | |
| So that was launched where we actually made it available to | |
| the public at the end of September, and we are going through | |
| the comments that we have received. We have received an awful | |
| lot of comments, so we are going through that. Then it has to | |
| go to OMB for review, and then finally, the final rule will | |
| probably be promulgated sometime later in the summer. | |
| Mr. SPANO. Good. Thank you. You already answered my second | |
| question, so thank you for doing that. | |
| The last Congress that then Chairman Chabot and former | |
| Ranking Member Velazquez introduced H.R. 4743, The Small | |
| Business 7(a) Lending Oversight Reform Act of 2018. It went on | |
| to pass the House and the Senate, and the President signed that | |
| into law last June. Can you provide the committee an update on | |
| how the implementation of this law is coming and any next steps | |
| that we should be anticipating? | |
| Mr. MANGER. Sure. Thank you very much for that question | |
| too. | |
| So part of that law, there was a report that was due to | |
| Congress by December 1 of this year. We got that to the | |
| committees, and we are implementing through regulation and | |
| actually, in some aspects of the SOP, updates so that we are in | |
| compliance fully with the statute that passed and was signed by | |
| the President last June. | |
| I believe we have 1 year to finalize that rule, that | |
| legislation in rulemaking, and so we are going to be able to | |
| meet that deadline by the end of June. I think it was the 21st | |
| of June last year that the President signed the bill, so we | |
| will make that deadline. And we are working diligently on that, | |
| and we take very seriously the operations in our office of | |
| credit risk management. | |
| Mr. SPANO. Excellent. Thank you so much. And then, if you | |
| would, for those of us who don't have a real in-depth | |
| understanding of the programs, give us an idea, if you would, | |
| what you believe the greatest challenges are that we face in | |
| 2019 with regard to the 7(a) program, the 504/CDC, and the | |
| Microloan. What is it that you would like to achieve, and what | |
| are the challenges that you face this year? | |
| Mr. MANGER. One of the challenges we are taking on is to | |
| make sure that our loan programs are available to all Americans | |
| no matter where they live. We have put into effect a fee | |
| reduction for loans made in rural areas as well as HUB zones, | |
| Historically Underutilized Business zones, because we want to | |
| make sure that again, people that need loans that live in rural | |
| America as well as in HUB zones have access to the loans that | |
| we make available. | |
| And so we have offered fee relief on loans up to $150,000 | |
| if they are made in a HUB zone or a rural area, and that is one | |
| of our big initiatives. Administrator McMahon signed an MOU | |
| with Secretary Sonny Perdue of the Department of Agriculture. | |
| And we are working jointly with Agriculture to make sure we are | |
| reaching out to the rural parts of the country and making sure | |
| that we have a robust lending environment in rural parts of the | |
| country as well. | |
| Mr. SPANO. Thank you. Madam Chair, I yield back. | |
| Chairwoman CHU. Thank you. The gentleman's time has | |
| expired, and now the gentleman from Tennessee, Mr. Burchett, is | |
| now recognized for 5 minutes. | |
| Mr. BURCHETT. Thank you, Chairlady. It is actually | |
| Burchett, birch like the tree, and et like I just et breakfast, | |
| so thank you. Thank you so much, Chairlady, and I appreciate | |
| that. I always enjoy it when somebody misspeaks my name so that | |
| I can correct them like that, and so it is all in good fun. | |
| Thank you, Ranking Member Spano, for the great work you | |
| have done. It has been enjoyable working with you, brother. | |
| I had a bunch of questions, but I think they have already | |
| been asked, but there was one that I was concerned about, and | |
| maybe you have answered this or not. If you have, just tell me | |
| to go on and watch the notes, okay. But is there any | |
| legislation that we as Congresspeople can focus on to help | |
| access to capital for small business owners, any legislation | |
| that is coming down the pike or some that may be just in your | |
| wish book that you have? | |
| Mr. MANGER. Thank you very much for that question. You | |
| know, the President's budget will be coming out in March, but I | |
| can speak about last year's budget. We did ask that we increase | |
| the maximum for Express loans. These are usually smaller loans | |
| that rely heavily on the lenders' underwriting criteria. And in | |
| exchange for that, we reduce the guarantee from the Federal | |
| Government on average from 75 percent down to 50 percent. So it | |
| is a great program because it is only a 50 percent risk to the | |
| taxpayer, and we would like to see that program increased from | |
| $350,000 which is the cap right now to $1 million. | |
| In fact, during the Recovery Act, the program was allowed | |
| to go up to $1 million. Then that expired, that sun set, but we | |
| are asking through the President's budget again to increase the | |
| cap on Express loans up to $1 million. So that is something we | |
| think would be very helpful. | |
| The Express program has not been performing as well lately, | |
| and we think that is because the cap is too low. Even if you | |
| took into effect inflation, we would be well over half a | |
| million dollars now in that program. So it needs to grow with | |
| the times, and anything you can do to help us increase the | |
| Express Loan cap, we would appreciate it. | |
| Mr. BURCHETT. All right. I am writing some notes down. You | |
| sparked my interest. You said the taxpayers are only on the | |
| hook for 50 percent. How does that work? Is that some of that | |
| new math I have been hearing about, or is that---- | |
| Mr. MANGER. So the way our programs work, Congressman, is | |
| the Federal Government places a guarantee on our 7(a) loans | |
| which is our largest program. Last year we did over $25 billion | |
| in the 7(a) program. So we put a guarantee on average of 75 | |
| percent. If it is a small loan, in fact, the guarantee goes up | |
| to 85 percent, so that is how we mitigate risk to our lending | |
| partners, and they are able to make loans to individuals and | |
| small businesses that they would not normally make a loan to | |
| because they don't meet their conventional criteria. | |
| In the Express program, because we give more authority to | |
| the lender and their own underwriting criteria, we lower, we | |
| decrease the guarantee from the Federal Government down to only | |
| 50 percent, but the lenders like it because it is much easier | |
| for them to process those loans. It is much faster. | |
| The program is greatly used as a revolving line of credit | |
| for those businesses that need a revolver in place to be able | |
| to draw upon when they need it. For example, they might have a | |
| seasonal business, and they need to draw money at certain times | |
| of the year. So that is a great program. And again, because we | |
| reduce the guarantee that the taxpayer is on the hook for down | |
| to 50 percent, it is a benefit to the taxpayer as well. But the | |
| $350,000 cap is just, at this point, too low, and we would like | |
| to see that increased. | |
| Mr. BURCHETT. How are they--you said that these are loans | |
| that normally wouldn't be able to be made because of some | |
| circumstances. Are they bad risks? Give me an example. You | |
| don't have to give me the bureaucrat thing. I am running out of | |
| time, and I want to get--you go ahead. | |
| Mr. MANGER. Sure. So here is an example, you know. There | |
| are many people who would like to start a restaurant. And if | |
| they go into their bank and they say look, I am wanting to open | |
| a restaurant. I have never been in the restaurant business, but | |
| I would like to start this business. I know I would be good at | |
| it. I am a great cook. I want to open this business, and the | |
| bank says you know what? That is just way too high risk an | |
| industry. We can't give you a loan for that. You have no | |
| experience. We are not going to do it. | |
| But with the SBA guarantee, we mitigate that risk to the | |
| lender. Again, on average, a 7-day loan is a 75 percent | |
| guarantee. So by taking that guarantee and putting that in | |
| place, the lender then says all right. My risk is mitigated at | |
| least by 75 percent. We are going to take that risk on. We are | |
| going to make this loan to you so that you can open that | |
| restaurant that you have always wanted to open. | |
| Mr. BURCHETT. Okay. One last question. | |
| Mr. MANGER. Sure. | |
| Mr. BURCHETT. I have got 13 seconds. How much is a | |
| Microloan? | |
| Mr. MANGER. A Microloan goes up to $50,000. But what is | |
| really interesting is the average size of a Microloan is only | |
| $14,000, and that is very, very impactful for the businesses, | |
| the small businesses that need just that amount of capital. And | |
| we have seen tremendous growth in that program, and we hope | |
| that it will continue to grow. | |
| Mr. BURCHETT. Okay. Thank you. | |
| Sorry, Chairlady. Sorry Chairlady I went over. I apologize, | |
| ma'am. | |
| Chairwoman CHU. Thank you for the questions, and we want to | |
| thank the witness for taking time out of his schedule to be | |
| here today. | |
| The bottom line remains that for 35 days, our country's | |
| main avenue for responsible small business lending was shut | |
| down. Though we may never fully know the exact magnitude of the | |
| shutdown, we do know that the impact on the economy was far | |
| more severe than our country's entrepreneurs deserve. I think | |
| my colleagues on the other side would agree that it should | |
| never happen again. | |
| So I thank you, Mr. Manger, and your whole team that got | |
| right back to work on day one after the shutdown to get our | |
| entrepreneurs back on their feet, and already you have made the | |
| SBA whole. | |
| I would ask unanimous consent that Members have 5 | |
| legislative days to submit statements and supporting materials | |
| for the record. | |
| Without objection, so ordered. | |
| And if there is no further business to come before the | |
| committee, we are adjourned. Thank you. | |
| Mr. MANGER. Thank you. | |
| [Whereupon, at 10:30 a.m., the subcommittee was adjourned.] | |
| A P P E N D I X | |
| Statement of William M. Manger | |
| Associate Administrator | |
| Office of Capital Access | |
| U.S. Small Business Administration | |
| before the | |
| House Committee on Small Business | |
| Subcommittee on Investigations, Oversight, and Regulations | |
| Hearing on ``Shutdown Lessons: SBA Capital Access Programs'' | |
| February 26, 2019 | |
| State of William Manger | |
| Associate Administrator | |
| U.S. Small Business Administration | |
| Thank you, Chairwoman Chu, Ranking Member Spano, and | |
| members of the subcommittee for inviting me to speak with you | |
| today. It is my pleasure to appear before you as the 116th | |
| Congress gets underway. I look forward to building a strong and | |
| open relationship with all of you moving forward. | |
| As some of you may know, the SBA provides tools and | |
| resources that are of great value to America's 30 million small | |
| businesses, which account for over 58 million jobs. As | |
| Associate Administrator for the U.S. Small Business | |
| Administration's (SBA) Office of Capital Access, it is my job | |
| to administer programs that make capital available to small | |
| business entrepreneurs who would otherwise be unable to access | |
| capital to start or expand a business through conventional | |
| means. | |
| Before assuming my role as the Associate Administrator for | |
| the Office of Capital Access, I had the honor to serve the | |
| agency as the Regional Administrator for Region 2, based out of | |
| New York, from 2005 to 2007, and then as the Associate | |
| Administrator for the Office of Field Operations in Washington, | |
| D.C. from 2007 to 2009. From the beginning of my time with the | |
| SBA, I have been able to witness the positive impact our | |
| programs have on communities across the country. | |
| America's small businesses are our nation's innovators and | |
| job creators, and I am committed to serving as their advocate. | |
| The role that the SBA and the Office of Capital Access plays in | |
| our credit markets fills an important gap in the lending | |
| marketplace. Our agency aims to help small businesses obtain | |
| credit that is otherwise unavailable through conventional | |
| lending. As many of you are aware, entrepreneurs certainly have | |
| the will and drive to succeed, but at times, access to capital | |
| unfortunately proves to be an insurmountable hurdle. That is | |
| where we come in. The SBA works with lenders to provide loans | |
| to small businesses. The agency doesn't lend money directly to | |
| small business owners but does reduce the risk for lenders | |
| through loan guarantees. Our programs have been helping small | |
| businesses get on their feet and grow since our inception. | |
| During the last two years, Administrator Linda McMahon has | |
| placed an emphasis on agency governance to ensure that our | |
| entire agency, including our Office of Capital Access, is | |
| running as efficiently and effectively as possible. Her | |
| leadership before, during, and after the recent lapse in | |
| appropriations, has greatly improved our ability to get back to | |
| business. | |
| Regarding the lapse, and in addressing today's hearing | |
| topic, my testimony will focus on three areas: | |
| 1. How the recent lapse impacted SBA's loan programs; | |
| 2. What actions the Office of Capital Access took | |
| during the lapse; | |
| 3. An update on SBA's loan program operations since | |
| funding was restored by Congress. | |
| Due to the funding lapse, our business lending and surety | |
| programs were closed from December 22 through January 27, a | |
| total of 20 full business lending days. SBA was unable to | |
| approve loans during this period and was not able to accept new | |
| loan applications. Applications for SBA-guaranteed surety bonds | |
| were also not able to be processed by SBA. All new secondary | |
| market 7(a) loan pools were stopped and purchasing of SBA- | |
| guaranteed loans was also halted. Throughout the lapse, our | |
| Capital Access Financial System contained the following notice: | |
| <bullet> Due to the lapse in appropriations, SBA is | |
| not able to approve new 7(a) or 504 loans. Please refer | |
| to the SBA website at www.sba.gov/partners/lenders for | |
| more information on SBA's 7(a) and 504 loan programs. | |
| Limited staff is available at SBA's servicing and | |
| liquidation centers to continue 7(a) and 504 loan | |
| program servicing and liquidation activities. | |
| While most routine activity in the Office of Capital Access | |
| ceased to operate, a few excepted and exempt operations were | |
| functional during the lapse. These included: | |
| <bullet> The administrative closing of certain | |
| previously-approved and obligated 504 loans; | |
| <bullet> Continued applications and servicing actions | |
| on disaster loans (SBA's Office of Disaster Assistance | |
| uses the loan program operations of the Office of | |
| Capital Access to process and service disaster loans); | |
| and | |
| <bullet> The online Lender Match platform, which | |
| automatically matches small businesses seeking | |
| financing with SBA-approved lenders. | |
| During the lapse, I remained engaged with external | |
| stakeholders, including the trade associations, to help | |
| communicate information to lenders, as necessary. We also took | |
| steps to ensure that there would be no impairment to government | |
| property while the loan program operations were idle. For | |
| example, the Director of the SBA Office of Credit Risk | |
| Management was brought in as an excepted official to ensure | |
| that risk management in the SBA loan portfolio, including | |
| critical, time-sensitive lender reviews and oversight, was not | |
| significantly compromised. | |
| Once Congress restored funding for SBA operations, our loan | |
| program systems were immediately operational on Monday, January | |
| 28, and normal business in the Office of Capital Access | |
| resumed. An Information Notice was published to notify all | |
| lenders that SBA was open for business. The detailed notice | |
| covered such topics as interim loans, servicing actions, report | |
| filings, as well as expedited requests. | |
| Since the agency resumed full operations, I am proud to | |
| report on our progress. Through February 14, our lending data | |
| is as follows: | |
| <bullet> 6,075 7(a) loans have been approved for a | |
| total of $2.64 billion; | |
| <bullet> 588 504 loans have been approved for $416 | |
| million; | |
| <bullet> 800 secondary market loans pending sale have | |
| been processed; | |
| <bullet> Surety bond applications have all been | |
| reviewed and processed with $188 million in bond | |
| guarantees having been approved. | |
| Over 80% of SBA 7(a) guaranteed lending is submitted to SBA | |
| by preferred SBA lenders on a delegated basis, and SBA can turn | |
| those applications around in a matter of days. 7(a) and 504 | |
| loans that are not submitted under delegated processing are | |
| sent to SBA loan processing centers for review. Under | |
| Administrator McMahon's leadership, SBA has dramatically | |
| improved the time it takes to review and process a non- | |
| delegated loan for a guarantee at the centers. In fact, the | |
| turn time has been cut in half by implementing process | |
| improvements over the last two years. | |
| That said, there are non-delegated loans that have been | |
| submitted for review since January 28 that we estimate will | |
| take additional time. Our loan processing centers are | |
| expediting urgent loan application reviews while also ensuring | |
| fairness so that loans are processed as they have come into the | |
| system. We have also budgeted overtime to allow for loan center | |
| staff to address these loans. As of now, the agency feels it | |
| can handle any resource needs through our existing budget. | |
| In conclusion, SBA's loan programs are fully operations, we | |
| have made significant progress in approving new loans, and we | |
| are actively addressing any delays in our non-delegated loan | |
| processing reviews. I am committed to ensuring that the Office | |
| of Capital Access works efficiently in supporting small | |
| businesses seeking financing after the lapse in appropriations. | |
| Thank you, Chairwoman Chu, for inviting me to testify here | |
| today. I look forward to answering your questions and | |
| continuing our work together to help advance small businesses | |
| across this country. | |
| [all] | |
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