Testimony of Nicholas Rudolph, Maryland Capital Enterprises — June 3, 2020

Summary

Written testimony of Nicholas Rudolph, Baltimore Regional Director of Maryland Capital Enterprises, Inc., a Community Development Financial Institution and SBA Women's Business Center, addressed to Chairman Rubio, Ranking Member Cardin and committee members, dated June 3, 2020. The statement describes increased demand for services from small business clients during the COVID-19 pandemic and a client example illustrating experience with EIDL and PPP. It states that businesses without payroll were ineligible for PPP, describes confusion over eligibility and forgiveness documentation, and suggests ideas such as making the first $50,000 of any PPP loan a grant. It also calls for funding the Small Business Relief Program and technical assistance for CDFIs, and asks that CDFIs take on no additional risk from servicing future loans.

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Nicholas Rudolph, Baltimore Regional Director, Maryland Capital Enterprises, Inc.




Thank you Chairman Rubio, Ranking Member Cardin and members of the committee for
inviting me to testify today. My name is Nick Rudolph and I am the Baltimore Regional Director
for Maryland Capital Enterprises, Inc., (MCE) a small Community Development Financial
Institution (CDFI) serving Maryland’s Eastern Shore and Baltimore regions. Since 1998, we
have provided guidance, technical assistance, classroom and virtual trainings and access to
capital for entrepreneurs in Maryland. And now, thanks in part to Senator Cardin’s advocacy for
additional Women’s Business Centers in Maryland, we also are an SBA Women’s Business
Center (WBC).
I am here today to share the experience of our small business clients during the COVID-19
pandemic and discuss ways future aid packages could provide the additional resources America’s
smallest businesses need to survive. Since we are a micro-lender working with the smallest of
small businesses, most of the people we serve don’t have the savings to weather a slowdown nor
the time to navigate complicated instructions to receive resources and funding to help them react,
recover and adapt to a potential new economy. As you are aware, the pandemic and resulting
economic slowdown have hit our smallest businesses the hardest. Our clients tend to be from
underserved rural and urban communities, and most are Low to Moderate Income Individuals
(LMI).
Unsurprisingly, we have seen an astounding increase in requests for services because of the
pandemic. Increasingly, the clients are approaching us with greater despair and fear for their
future stability. Most entrepreneurs we speak to are seeking funding to help them survive while
their businesses are either closed or seeing a major decrease in revenue. For instance, our WBC’s
requests for services has more than doubled in the last two months. Since WBCs provide services
specifically to women and other underserved entrepreneurs, we have been able to ascertain what
a typical client needs moving forward. In addition to emergency loans and grants, they are
requesting funding to retrofit their stores for virus mitigation, rent assistance and guidance or
training on surviving in a post COVID economy with a focus on opening and operating safely
and resources to provide health care to owners and employees. Our clients are resilient. They
clearly want and are willing to adapt but they need support and resources to do so.
I think that the experience of a woman-owned comic book and games shop in Baltimore is
typical of many of our clients. The current owner of the store purchased the existing business in
March 2019 and spent a year renovating, building a customer base, and growing the store’s
gaming business. She had successfully launched a popular summer camp gaming program,
almost nightly evening events for all ages and a partnership with a historic theater across the
street that cross-promoted her shop when debuting new action movies. MCE provided the initial
funding to purchase and renovate the store.
When it became clear that non-essential businesses would be closed, she reached out for
assistance. We assisted her with her EIDL application and provided guidance on PPP. She
discovered that her business was not eligible because it did not have payroll. Hers is a true “Mom
and Pop” shop, she and her husband saved knowing that they would not be paying themselves
for the first year as they expanded. This is an experience shared by many of the smallest Main
Street businesses that are run by families. Because she was ineligible for PPP, she focused on
EIDL and applied in early March. She received confirmation that application was accepted and
under review and then heard nothing until May 19th, when she learned she received a $40,000
loan with no grant portion because there are no employees. Once she heard she was approved
and filled out the closing documents, she was immediately funded.
While awaiting a decision, she was able to negotiate with her landlord for partially reduced rent
for three months. She will have to pay the difference eventually. While she is lucky to have a
landlord that is somewhat flexible on rent, many businesses are not. She worked with local
officials to allow for contactless delivery of comic books so there would be some revenue. She
told me that she is working three times as many hours as usual for about a quarter of the revenue
and that it is not sustainable financially, physically, or mentally. She is using some of her EIDL
loan to help build an online platform and expand her gaming business since that is what
customers are requesting. She would be able to spend more of the funds to retrofit her retail
business in an increasingly contactless world, but feels she needs to horde most of it because she
fears there will be no more assistance coming and she will not be able to pay her current or back
rent. When asked what micro-enterprises like hers needs to survive, she responded rent relief is
key because once she is able to reopen she expects there to be less revenue because of a possible
recession and the fact that people will be less comfortable shopping in person. Her rent will soon
return to normal and she must make her landlord whole, without additional assistance her
business will likely fail leaving her jobless and in debt. I think her story underscores the need for
flexible and easily available resources for businesses with ten or fewer employees.
The EIDL loan is a particularly impactful product for these businesses because of its low interest,
long terms, eased credit requirements and the fact that collateral is not required. In a perfect
world, all approved applicants would receive the full grant portion regardless of number of
employees. Additional products like EIDL will be key to short-term success in the coming
months, as well as three to five years in the future as small businesses continue to work to
stabilize themselves and adapt to a post-COVID climate. Entrepreneurs will be hurt by the likely
economic downturn, which will impact their credit. Housing values may go down, eliminating
what collateral they may have had. It is up to us to ensure these businesses survive.
While MCE has not serviced PPP loans, we have provided guidance and assistance to many
entrepreneurs interested in applying for the funds. Again, while PPP is great product there are,
understandably, some things that could be changed to make it more friendly to micro-enterprises.
It was difficult to find banks that would service the loans if the client did not have an existing
lending relationship with the bank. We worked with businesses who banked with an institution
for over a decade but were unable to apply because they only had accounts and not loans with the
bank. Many businesses were afraid to apply because they were confused by the documentation
needed for forgiveness and they were not in a position to take on additional debt. There was great
confusion about what was needed to apply and who was eligible and, at times, even we as
professional lenders with decades of experience were unsure of the answers. They regularly
express concerns with the timeframe to spend the funds, fearing that they would not be able to
open in time to use the funds. Those who have received funds fear that incorrectly completing
one form will result in them being denied forgiveness which would devastate the business. In
fact, two clients we worked with decided to return the funds out of this fear. Perhaps outside of
the box ideas like making the first $50,000 of any PPP loan a grant or accepting signed
assurances of compliance as proof for forgiveness from smaller borrowers would give these
“Mom and Pop” businesses the confidence to take advantage of this amazing program. Allowing
them three to six months from the date they reopen would mitigate concern as well. For some of
our businesses, like the comic book store I discussed with you, PPP was not an option because
they take owners draws instead of paying themselves as W-2 or 1099 employees and even if they
were allowed, the eligible amount would too small to be worth the time and effort. Which is why
it is so important that both the PPP and EIDL are available.
Funding the Small Business Relief Program that funnels funding to states is key to ensuring that
all small businesses have access to the resources they require because different areas have unique
needs that are better met with localized support. Additionally, funding for Technical Assistance
for CDFIs and other service providers will be critical to overcoming challenges because of an
increased need for services from existing businesses and entrepreneurs who see a niche they can
fill. One thing that is imperative to allow CDFIs to focus on our work directly with clients is
ensuring that no additional risk is taken on by CDFIs servicing any loans from future small
business assistance packages because we expect more businesses will default due to a slowing
economy.
It is our small business entrepreneurs who will provide the innovative solutions necessary for all
of us to succeed in a post COVID-19 economy and reality, and we need you to provide us with
tools to guide and support them through this once in a lifetime challenge. The hard truth is that
there is no easy, perfect or one size fits all solution to this. One thing is for certain, it will be a
significant expense but there is no way America can afford to lose the small business community
that is so vital to our economy, local identities and American way of life. The resources provided
by the CARES Acts and guidance, communication and assistance of the SBA have been
instrumental in allowing us to serve our clients. While the roll out has not been perfect, it is more
than understandable because of need to get the resources into the hands of small businesses
quickly was so great that full policies and procedures could not be created first. We are more
than grateful for the hard work that you and the SBA are doing in these scary, confusing, and
uncertain times. We look forward to working with you and SBA in the future to continue
supporting small business.
I would like to thank you for the opportunity to share my experiences with your committee. It is
an honor. I will do my best to respond to any questions that you have.
Thank you,
Nick Rudolph, Baltimore Regional Director
Maryland Capital Enterprises, Inc.
212 W. Main Street, Suite 400
Salisbury, MD 21801


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