Guzman Testimony

Summary

Written testimony of Isabella Casillas Guzman, Administrator of the U.S. Small Business Administration, before the Senate Committee on Small Business & Entrepreneurship at an April 27, 2022 hearing on oversight of the agency. It presents the President's Fiscal Year 2023 budget request of $1.06 billion, comprising $914 million for SBA programs and $143 million for major disasters under the Stafford Act, and seeks a 13% increase in small business lending authority to a total of $71 billion. It states that the SBA distributed more than $450 billion in COVID relief in Fiscal Year 2021, and that 87 percent of eligible PPP recipients had submitted forgiveness applications, with 86 percent partially or fully forgiven. It reports 51,850 7(a) loans totaling $37 billion and more than 9,670 504 loans totaling $8.2 billion, and asks authority to transfer $320 million to service COVID EIDL loans.

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                    Testimony of


              Isabella Casillas Guzman
                    Administrator
        U.S. Small Business Administration


                     Before the


          Committee on Small Business &
               Entrepreneurship
                  U.S. Senate


                     Hearing on


“Oversight of the U.S. Small Business Administration”


                   April 27, 2022
                             Testimony of Isabella Casillas Guzman
                                        Administrator
                              U.S. Small Business Administration

Good morning, Chairman Cardin, Dr. Paul, and distinguished members of the committee. Thank
you for the opportunity to appear before you today to discuss President Biden’s Fiscal Year 2023
budget request for the U.S. Small Business Administration—and our intent to apply the
resources and leadership provided by Congress to continue supporting our small business
economy and delivering for a surging wave of new American entrepreneurs.

The President’s budget requests $1.06 billion—$914 million to support the SBA’s critical small
business programs that foster growth and opportunity along with $143 million for major disasters
under the Stafford Act. Collectively, this funding level represents practical investments in
economic progress that will help lower the federal deficit, cutting costs for families, and
advancing the President’s bipartisan Unity Agenda.

I have seen for myself how these investments will help uplift America’s growing population of
small business owners and entrepreneurs. Over the past year, I’ve visited hundreds of small
businesses across 28 states and Puerto Rico. I’ve had the opportunity to visit many of the
communities you represent and witness the strength and resilience of American entrepreneurship
firsthand.

Despite hardships from the pandemic, America’s small businesses and innovative startups are
creating new jobs, powering our economy, strengthening our global competitiveness, and
supporting working families and communities across the nation.

America’s global economic leadership and strength depend on the health of our nation’s small
business economy and the entrepreneurs contributing to it.

Americans are launching businesses at record rates. Business applications have risen more than
30% from pre-pandemic levels, and in 2021 alone, 5.4 million Americans applied to start a
business.

One of this Administration’s top priorities is making sure the opportunities of this surging
economy are reaching all Americans. President Biden often says that ability is spread evenly but
opportunity is not. And that’s important because building equity—ensuring America's doors of
access and opportunity are open to all—isn’t just the right thing to do, it’s good for business.

Investing in equity helps ensure more of our nation’s extraordinary talent and creativity can be
fully leveraged to create products and services that make our lives better and confront global
challenges.

President Biden’s fiscal year 2023 budget builds on the agency’s successes, honing our programs
to make it easier for small businesses to grow—especially in communities and areas of our
economy where they are needed most: expanding the supply of affordable childcare, constructing
new renewable energy capacity, building generational wealth in underserved communities,
positioning small businesses to serve as contractors in the buildout of modern infrastructure, and
inventing—and bringing to market—powerful new technologies to address climate,
cybersecurity, and so much more.

COVID RELIEF

To put the President’s fiscal year 2023 budget in context, we need to consider how we got here—
and how far we have come in America’s economic recovery from COVID.

Facing a once-in-a-generation pandemic, Congress worked with President Biden to deliver the
American Rescue Plan, historic legislation that built on the CARES Act and the Economic Aid
Act to strengthen financial safety nets and ensure millions of American small businesses could
survive the pandemic.

In Fiscal Year 2021, the SBA distributed more than $450 billion in financial relief through the
Paycheck Protection Program, the COVID Economic Injury Disaster Loan and Advance
programs, the Restaurant Revitalization Fund, and the Shuttered Venue Operators Grant
program. Those vital relief funds saved jobs in every community in the country.

As a result of Congressional leadership, we have helped millions of small businesses and
nonprofits keep their doors open and expanded our reach to serve the smallest of small
businesses, underserved entrepreneurs, main street restaurants and live entertainment venues.

After making key programmatic changes that protected the integrity of the Paycheck Protection
Program (PPP) and COVID EIDL programs from fraud, we served more sole proprietors and
mom and pop businesses than ever before. Now, we’re continuing to deliver on the promise of
forgiveness. To date, 87 percent of all eligible PPP recipients have submitted forgiveness
applications and 86 percent have had their loans partially or fully forgiven.

SBA staff also worked carefully to expand access to small business lending for our core
customers. For example, the agency developed new rules to make it easier for projects to use 504
refinancing with or without expansion funding.

Over the past year, we also redesigned COVID EIDL, our Economic Injury Disaster Loan
program, to meet our customers’ needs with an improved user experience including a mobile-
friendly application, as well as making several impactful policy changes including more flexible
use of funds, loan payment deferment, and a more streamlined process for speed and certainty.

As a result of these improvements, our COVID EIDL program distributed vital emergency relief
that reached as much as $2.8 billion per day, and we’re continuing to distribute around $750
million per day through the program to finalize reconsiderations and loan increase requests.

CAPITAL ACCESS

The SBA’s core capital programs delivered at impressive, record-setting levels in Fiscal Year
2021—another reflection of the historic surge in American entrepreneurship and further evidence
that demand for SBA capital support is outpacing available resources, with the unprecedented
approval of more than 51,850 7(a) loans totaling $37 billion, a 62 percent increase from the
previous year.

In the 504 loan program, the SBA approved more than 9,670 loans, totaling $8.2 billion. That is
also a record and a 41 percent increase from last year, utilizing the entire $7.5 billion
authorization for the core 504 program.

The Microloan Program delivered more than 4,500 loans to small businesses in underserved
communities, totaling nearly $75 million.

The SBA also exceeded its Lender Match Agency Priority Goal target of 86,000 businesses
connected through Lender Match by more than 500 percent, bringing access to SBA loans within
reach for 554,000 small businesses—helping to increase the number of lender and small business
connections, upgrading user experience and convenience, and improving access to capital
overall.

Combined, SBA’s capital programs support hundreds of thousands of jobs—and after a careful
review, including the high demand for them, President Biden is requesting authorization for a
13% increase in small business capital across these programs above enacted Fiscal Year 2022
levels for a total of $71 billion.

Specifically, the President’s request includes a $5 billion increase to lending authorized under the
7(a) loan program, a product most often used by small businesses for working capital or business
acquisition; a $2 billion increase in authority for Secondary Market Guarantees for 7(a) loans;
and a $1.5 billion increase to lending authorized under the 504 Loan Program, most often used to
finance major purchases with the objective of long-term growth, such as real estate and major
equipment.

COVID EIDL TRANSFER AUTHORITY

The Budget request recognizes that we need to make sure COVID EIDL borrowers are
supported. SBA is requesting authority to transfer $320 million in already-appropriated targeted
EIDL advance balances to support COVID-EIDL loan servicing and other COVID-related
programs.

Transferring this funding is critical since the SBA bears responsibility for servicing more than
3.9 million COVID EIDL loans totaling more than $361 billion. For comparison, that amounts to
nearly half the volume of all credit card debt in the United States today.

A large percentage of these borrowers will start making monthly payments in the months ahead,
requiring SBA to shift from COVID EIDL origination to servicing. Our role as an agency should
also include providing these borrowers with the necessary education, support, and quality
customer service they deserve as they enter this new phase of their recovery.
We believe the $320 million transfer authority requested in the President’s budget is sufficient to
provide the necessary support in the coming fiscal year.

BUILDING RESILIENCY FOR SMALL BUSINESS

One of President Biden’s top priorities in office has been preparing America’s economy and our
communities for the growing threats and challenges of a changing global climate. The SBA plays
an important role in this work.

As climate change has driven more frequent and devastating natural disasters, the SBA’s Office
of Disaster Assistance has been an important federal partner over the President’s first year,
providing lifelines totaling nearly $2.3 billion to help small businesses, renters, and homeowners
recover and rebuild.

That SBA disaster aid included nearly $100 million in loans to support victims of the Colorado
Wildfires and Straight-line Winds and $1.8 billion in loans to help more than 37,000 individuals
and businesses all the way from Louisiana to New York recover and rebuild after Hurricane Ida.

With a more active hurricane season forecast for this year, one of the most effective ways we can
help mitigate the disaster costs of climate change is to invest more in resiliency.

The President’s budget requests $179 million in disaster funding—including $10 million to help
address the climate crisis through the SBA’s business loan and disaster loan programs—to
ensure the agency can deliver its critical support after a disaster and help prevent similar damage
in the future by supporting efforts to facilitate access to capital for climate change mitigation
investments and resilience efforts to support a more sustainable economy.

VETERANS

One of the most important places where the SBA is working to build our capacity is in support of
America’s veteran entrepreneurs. Veteran-owned small businesses generate nearly $1 trillion in
revenue annually and they support 4 million jobs.

In Fiscal Year 2023, the SBA is planning to expand the Veterans Business Outreach Center
Program significantly—from 22 to 34 locations nationwide, an expansion that will significantly
improve the customer experience for veteran entrepreneurs by reducing travel and wait times for
appointments and providing additional local training opportunities.

This expansion reflects an expectation that demand for small business startup and scaleup
technical assistance among veteran small business owners will continue to grow—in part
because of an expanded focus on underserved and underbanked communities as well as
continued implementation of the FY 2019 National Defense Authorization Act (NDAA)
requirements that increased the number of transitioning service members and military spouses
that have access to SBA’s popular Boots to Business program.
Another way we’re working to improve customer experience and support for veteran
entrepreneurs is the ongoing transfer of duties associated with the Center for Verification and
Evaluation or CVE, from the U.S. Department of Veterans Affairs to the SBA, as directed by the
FY 2021 NDAA.

This center is responsible for verifying veteran eligibility for veteran-owned small businesses
and service-disabled veteran-owned small businesses, an important certification that empowers
these veteran business owners to participate in set-aside and sole source contracting
opportunities. With the transfer of these responsibilities to SBA, the certification will become
available to all veteran contractors, not just those doing business with the VA.

Veteran’s Small Business certification program and oversight will be the responsibility of the
SBA starting January 1, 2023. As a result, the President’s Budget requests $20 million to manage
this transition and maintain the CVE program for the duration of the 2023 fiscal year—funding
that will provide the resources necessary for information technology infrastructure development,
integration, and maintenance.

The SBA also plans to collaborate with the VA to support outreach activities, including
marketing and training to assist the veteran small business community to ensure continued
operations and support to program participants in the areas of application processing, eligibility,
and oversight of continuing eligibility for program participants to ensure their eligibility for
contracts.

INVESTMENT AND INNOVATION

SBA’s innovation arm delivered significant support last year with Small Business Investment
Companies (SBICs) providing more than $7 billion in long-term funding to more than 1,000
small businesses helping to start, grow, and sustain small businesses and startups across 49 states
and Puerto Rico. The budget requests an authorized commitment level of $5 billion for the SBIC
program, consistent with the FY22 authorized level and a $1 billion increase from FY21.

The President’s budget also builds on the FY 2022 request to support the scaling up of
SBIR/STTR programs, enabling additional outreach and training efforts targeted to women,
underserved geographic locations including rural, and socially or economically
disadvantaged entrepreneurs.

This budget also proposes investments that will strengthen America’s innovation ecosystem by
providing $10 million to Growth Accelerators, $10 million to Regional Innovation
Clusters (RICs), and $10 million to our Federal and State Technology (FAST) Partnership
Program.

CONTRACTING

America’s small business industrial base has seen a long pattern of decline, with the number of
small businesses contracting with the federal government dropping by close to 40 percent over
the past decade. New entrants have decreased even more, by as much as 60 percent. We also
know that small businesses owned by people of color and women continue to be left out.

Under President Biden’s leadership, the SBA has implemented significant reforms to reverse
these trends and open the doors of contracting to more small businesses in more communities.

For example, federal agencies will be required to track and publicly report how they’re bringing
in new contractors. The SBA is managing executive performance metrics to small business goals
for socio-economic firms including the President’s 15 percent goal for small, disadvantaged
businesses by 2025, with a Fiscal Year 2022 goal of 11 percent. We believe the Bipartisan
Infrastructure Law and the Made in America Executive Order will provide additional
opportunities for small businesses to contract with the government, either directly or as suppliers
to other firms.

To improve transparency and accountability, the SBA has also started reporting disaggregated
federal contracting data across industries and sectors, including tracking by race and ethnicity,
for the first time ever. As a result we can better track contracting disparities—including, for
example, knowing that Black-owned firms are awarded less than 2% of contracts but make up
10% of all businesses.

Along with releasing the disaggregated data, agencies will track new entrants alongside small
business performance, and we are including contracting goals in the evaluations of senior
executives managing procurements. We’ve also worked closely with the Office of Management
and Budget to revise and clarify category management policies and practices to significantly
expand opportunities for small business contractors, especially those in underserved
communities.

As the agency responsible for directing the federal contracting goals for small businesses, the
SBA is committed to closing these gaps and opening doors of federal contracting by working
with all our federal buying agencies and offering direct support to more small businesses to get
them capital and contract ready.

To that end, the President’s fiscal year 2023 budget includes $9.8 million, an increase of $6.3
million over FY22 enacted, to scale up training to help an estimated 9,500 small, disadvantaged
businesses better prepare for federal contracting opportunities.

With funding increases for the 7(j) Program, the SBA also plans to promote inclusive economic
opportunity in government contracting for 7(j) eligible business owners, namely low-income
individuals, residents of low-income areas, residents of high unemployment areas, HUBZone
eligible firms, 8(a) firms, and economically disadvantaged women-owned small businesses. We
know, for example, that 8(a) certified firms that received 7(j) training had a 12 percent higher
probability of getting their first contract compared with firms that did not take the training.
ENTREPRENEURIAL DEVELOPMENT

During COVID, we learned that connection and networks were critical for entrepreneurial
success. The agency’s nationwide network of resource partners has delivered entrepreneurship
and small business training and support to more than 1.2 million entrepreneurs, with clients
obtaining more than $7.9 billion in capital and starting nearly 26,000 new businesses in FY 2021.

These networks have expanded to meet the growing demand for their services. For example, the
SBA maintains a network of more than 140 Women’s Business Centers (WBC). With the
opening of our 141st location in Alaska, we now have a WBC in every state, the District of
Columbia and Puerto Rico, making it the largest such network in our agency’s history focused on
the unique strengths and needs of women entrepreneurs.

The President’s fiscal year 2023 budget builds on a still-growing demand for these and related
services, requesting $318 million—a 17% increase above the FY 2021 enacted level—for
Entrepreneurial Development programs.

SALARIES & EXPENSES

Ultimately, the important mission carried out by the SBA relies on the strength of our talented
and dedicated workforce. This budget request invests $346 million to ensure the SBA can hire
and retain the talent needed to provide these critical services and meet the demand for loans,
counseling, training, government contracting, and other support during this time of increased
entrepreneurship and business formation.

Ensuring strong federal support for this account will ensure that the agency can continue to meet
the demand and deliver customer-centric services that America’s small businesses need to
succeed.

FRAUD REDUCTION

One of my most important missions at the SBA is ensuring good stewardship of our limited
federal resources. That is why the SBA has upgraded our systems and processes to detect and
prevent fraud.

We recognize that managing fraud risk in agency programs and operations is integral to
responsible stewardship of taxpayer resources and effective service delivery to the American
public.

During this Administration, the SBA has acted quickly to protect taxpayer dollars, first by
restoring controls that mitigate fraud as approved by Congress under the Economic Aid Act. We
deployed technology as well as made various other process improvements that not only sped up
review times but also automatically routed high-risk loans for closer scrutiny.

As a result, the SBA has been better able to crack down on fraud, substantially reduce
application backlogs, and significantly improve SBA customer experiences while still ensuring
legitimate businesses have a clear path to access the emergency financial lifelines Congress
created for them.

The SBA’s work in the Biden-Harris Administration to enhance fraud controls in pandemic
programs has been recognized by federal accountability agencies and watchdogs. And these new
fraud prevention measures are just the start.

I recently announced the creation of the SBA’s new Fraud Risk Management Board (FRMB).
This Board is the agency’s designated anti-fraud entity and replaces existing fraud risk structures
put in place before the pandemic and will provide the necessary oversight and agency-wide
coordination under the standards and framework recommended by the GAO.

I have also designated an SBA Special Counsel for Enterprise Risk to work directly in the Office
of the Administrator to limit fraud and risk across the Agency in coordination with our
established Enterprise Risk Management Board and the Fraud Risk Management Board.

This work is important which is why the SBA strongly supports the work of the Interagency
COVID-19 Fraud Enforcement Taskforce and the Department of Justice Chief Pandemic
Prosecutor and Director for COVID-19 Fraud Enforcement—efforts that I am confident will
further develop SBA’s fraud risk framework and further strengthen our mitigation efforts.

We are working closely with the Office of Inspector General and other federal authorities to refer
suspected fraud to the appropriate law enforcement authorities so that they can recover taxpayer
funds with our full support. This is a critical part of SBA’s mission and I am committed to
working with stakeholders—including Congress—to protect SBA’s programs from abuse.

CONCLUSION

President Biden’s budget request for Fiscal Year 2023 builds on the incredible progress we have
made since the start of the Biden-Harris Administration: building bridges of equity and
opportunity across America; and, opening doors for more small businesses to grow with access
to capital, networks, training, innovation, and government contracting.

We have helped spark a historic resurgence in American entrepreneurship. The President’s
budget framework taps into the entrepreneurial spirit to position small businesses at the forefront
of our nation's rebuilding and as the foundation for America’s greatest economy yet.

Thank you again Chairman Cardin, Dr. Paul, and distinguished members of the committee, for
the opportunity to appear before you today. I look forward to your questions.


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