[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
SHUTDOWN LESSONS: SBA CAPITAL ACCESS PROGRAMS
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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
__________
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Small Business Committee Document Number 116-004
Available via the GPO Website: www.govinfo.gov
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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
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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:
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:
The administrative closing of certain
previously-approved and obligated 504 loans;
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
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:
6,075 7(a) loans have been approved for a
total of $2.64 billion;
588 504 loans have been approved for $416
million;
800 secondary market loans pending sale have
been processed;
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.
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