Testimony of Hilda Kennedy, AmPac Tri-State CDC — Senate Small Business Committee, April 26, 2023

Summary

Written testimony of Hilda Kennedy, Founder and President of AmPac Tri-State CDC, Inc., submitted to the U.S. Senate Committee on Small Business and Entrepreneurship on April 26, 2023, on oversight of the SBA's implementation of final rules to expand access to capital. It states that more than 7,673 loans totaling $1,050,734,400 have been made under the 7(a) Community Advantage Loan Pilot Program since 2012. Citing SBA Weekly Lending Reports for 2018-2022, it reports 13 percent of those loans went to Black-owned and 15 percent to Hispanic-owned businesses, against 4 percent and 8 percent for traditional 7(a) lenders. It discusses the SBA final rule rescinding the Small Business Lending Company moratorium, effective May 12, 2023, and the September 30, 2024 expiration of the pilot program, and asks that provisions of the Permanency Act of 2022 be applied where the rule lacks clarity.

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    Oversight of the SBA’s Implementation of Final Rules to Expand Access to Capital




                                  Testimony before the
                                       U.S. Senate
                   Committee on Small Business and Entrepreneurship



                                     April 26, 2023



                                      Submitted by:
                                     Hilda Kennedy
                                    Founder/President
                  AmPac Tri-State CDC, Inc., dba AmPac Business Capital
                                      Ontario, CA




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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.
                                           Hilda Kennedy
                                          Founder/President
                         AmPac Tri-State CDC, Inc., dba AmPac Business Capital

         Chairman Cardin, Ranking Member Ernst, and distinguished members of the Committee,
good afternoon and thank you for having me today. My name is Hilda Kennedy, and I am the
President and Founder of AmPac Tri-State CDC in Ontario, California. I am a former board
member of the National Association of Development Companies (NADCO), a member of the
Mission Lenders Working Group (MLWG), the African American Alliance (AAA) of Community
Development Financial Institutions (CDFI’s) and the Opportunity Finance Network (OFN).
         I appreciate the opportunity to share my perspective on current efforts by Congress, the
SBA, and industry participants to improve lending in the communities that struggle the most to
access capital to start, sustain, and grow small businesses. As an economic development driven
504 Loan Program lender, an enthusiast participant in the SBA’s 7(a) Community Advantage Loan
Pilot Program, and an SBA Micro Lender, as well as a CDFI, I care deeply about expanding access
to capital through the SBA’s lending programs. I strongly believe efforts by Congress and SBA to
address inequities for socially and economically disadvantaged businesses can work in concert and
complement each other, which is my most urgent message today. Collectively we have strived for
decades to fulfill the mission set out with the creation of the Small Business Administration. I
believe the Community Advantage Loan Program Permanency Act of 2022 (S. 5102/H.R. 9311),
helmed by Chairman Cardin, and its companion House bill championed by my Congresswoman
Judy Chu, and the SBA’s launch of a Community Advantage Small Business Lending Company
(CA SBLC) license are parallel efforts that can provide the traction to finally hit the stride we have
been seeking to elevate our nation on this 70th Anniversary of the Small Business Act of 1953 (P.L.
83-163).
         I will use the tenets described in the Small Business Act as a guide for my testimony.
Section 2 of the Act outlines the findings of Congress and reasoning for creating the SBA. In
Section 2(A), the Act states, “(ii) that certain groups in the United States own and control little
productive capital because they have limited opportunities for small business ownership; (iii) that
the broadening of small business ownership among groups that presently own and control little
productive capital is essential to provide for the well-being of this Nation by promoting their
increased participation in the free enterprise system of the United States,”1 followed by, “(B) It is
therefore the purpose of the programs authorized by section 7(j) of this Act to— (i) foster business
ownership and development by individuals in groups that own and control little productive capital;
and (ii) promote the competitive viability of such firms in the marketplace by creating a small
business and capital ownership development program to provide such available financial,
technical, and management assistance as may be necessary. (iv) that such development of business
ownership among groups that presently own and control little productive capital will be greatly
facilitated through the creation of a small business ownership development program, which shall
provide services, including, but not limited to, financial, management, and technical assistance.”2
         These citations outline the importance Congress placed on the role of small business
ownership to the national economy, while acknowledging that there are significant gaps to
reaching those potential business owners who do not have access to the necessary capital to

1
    Small Business Act, page 2
2
    Small Business Act, page 3
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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.
participate meaningfully in the U.S. free enterprise system. The Act further acknowledges the
particular barriers that exist for socially and economically disadvantaged businesses and the
importance of full participation of these groups in Section 2(B)(f), “(A) that the opportunity for
full participation in our free enterprise system by socially and economically disadvantaged
persons is essential if we are to obtain social and economic equality for such persons and improve
the functioning of our national economy,”3 and, “(E) that such conditions can be improved by
providing the maximum practicable opportunity for the development of small business concerns
owned by members of socially economically disadvantaged groups.”4
         These tenets provide a solid foundation for the important discussion the Committee is
having today. Since the formation of the SBA in 1953, it has evolved through the creation of new
programs by Congress and development of numerous pilot programs by the Agency, all with the
goal of meeting the objectives Congress outlined in the Small Business Act. Today, Congress,
SBA, and industry participants are still seeking to meet these objectives and to address the barriers
that still exist for small businesses. Different approaches have been taken over the years, but we
all share the common goal of increasing access to capital to strengthen local communities, build
generational wealth, and support the national economy. While significant improvements have
been made, socially and economically disadvantaged entrepreneurs, and small businesses with
fewer than 20 employees in particular, continue to face barriers accessing the capital they need to
succeed. 5 As such, it is for the “well-being of the Nation,” as the Small Business Act intended,
that Congress, SBA, and industry participants make meaningful changes to significantly improve
opportunities for underserved small businesses to access SBA’s lending programs.
         SBA has worked for years to reach socially and economically disadvantaged businesses,
and in 2011, launched the 7(a) Community Advantage Loan Pilot Program with the goal of
expanding SBA-backed lending in underserved markets by allowing experienced, mission driven,
nonbank lenders to participate in the SBA’s 7(a) loan guarantee program. CA lenders, like AmPac,
have demonstrated that Microloan Intermediaries, CDCs and CDFIs have the experience needed
to reach, finance and support underserved and undercapitalized businesses. Mission lenders are
not simply focused on making loans and sending business borrowers on their way, but strive to
improve the outcomes of their borrowers through technical assistance and other business services
so the loan is a launching point for growing a successful business, supporting employees, creating
jobs, and building generational wealth for entrepreneurs.
         Since the first CA loan was approved in 2012, more than 7,673 loans totaling
$1,050,734,400 have been made to small businesses in markets that historically have been socially
and economically disadvantaged6. In fact, according to data from SBA Weekly Lending Reports
from 2018 -2022,7 13 percent of the loans made by CA lenders went to Black-owned businesses
and 15 percent went to Hispanic-owned businesses. During this same time period, 4 percent of the
loans made by traditional 7(a) lenders went to Black-owned businesses and 8 percent to Hispanic-
owned businesses. Similar, though not as dramatic, results were true for women, veterans and start-

3
  Small Business Act, page 3
4
  Small Business Act, page 3
5
  Federal Reserve Bank of New York: Double Jeopardy: COVID–19’s Concentrated Health and Wealth Effects in
Black Communities and Federal Reserve Banks: Small Business Credit Survey: 2021 REPORT ON EMPLOYER
FIRMS
6
    Small Business Administration: FOIA - 7(a)(FY2010-FY2019) as of 230331
7
    Small Business Administration: Weekly Approvals Report with data as of 09/30 for each FY 2018- FY 2022
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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.
up businesses. Since the CA pilot was launched in 2011, the SBA has issued several short-term
extensions of the pilot, including the most recent two-year extension announced in April 2022 that
introduced a series of CA program reforms that I will discuss in greater detail later in my testimony.
         Most recently, SBA released a final rule, Small Business Lending Company (SBLC)
Moratorium Rescission and Removal of the Requirement for a Loan Authorization, which will
be effective on May 12, 2023 and amongst other things, is an effort to increase lending in
underserved communities.8 According to the rule, the SBA “has determined that certain markets
where there are capital market gaps continue to struggle to obtain financing on non-predatory
terms. Therefore, SBA is lifting the moratorium on licensing new Small Business Lending
Companies (SBLC) and creating a new type of SBLC to help bridge this financing gap.”9 The
SBA’s creation of a new type of SBLC, a Community Advantage SBLC, is intended to provide a
permanent avenue for small dollar lending in socially and economically disadvantaged
communities, and create certainty for current and prospective lenders. Current CA lenders will be
grandfathered into the Community Advantage SBLC, and new lenders would be directed to apply
to the Community Advantage SBLC program since the SBA will not be extending the September
30, 2024 expiration date for the Community Advantage Pilot Program.10 Additionally, SBA will
determine on a lender-by-lender basis the maximum loan size, target market, geography, capital
requirements, fees and other programmatic requirements for participation.
         While SBA proposed this rule as a solution to meet the needs of more underserved
borrowers, Congress has also been hard at work to address the needs of socially and economically
disadvantaged businesses. Last November, as noted earlier, Senate Small Business and
Entrepreneurship Committee Chairman Ben Cardin and my Representative Judy Chu (CA-28)
introduced the Community Advantage Loan Program Permanency Act of 2022, which would
make the CA program permanent with needed adjustments to expand access.11 I, along with all of
the organizations I am part of, supported this important 2022 legislation as the path to the
permanency for the Community Advantage Loan Program. Chairman Cardin and Representative
Chu have worked diligently for years to codify the CA program and I want to express my thanks
for their focus and dedication to the communities that are left behind, and often overlooked. I also
want to applaud Ranking Member Ernst, whose fresh leadership and commitment to increasing
access to capital for rural small businesses is aligned with the mission of the CA program to reach
such businesses and create healthy local communities.
         As an industry participant in multiple SBA programs, as well as a CDFI through the
Treasury Department, I would like to speak to the work my CDC and CDFI undertakes to reach
businesses who desperately need access to capital, and in some cases technical assistance, and our
ability to provide this support through SBA’s lending programs. While I am not alone in my focus
on socially and economically disadvantaged businesses, each CDC reaches communities in
different ways and through different programs, so I will focus on AmPac and our daily work. First
and foremost, the founding of AmPac Tri-State CDC is rooted in my faith. We approach our work
from an “It Is Possible” mentality, knowing that with God, All Things are Possible. We believe

8
  Federal Register :: Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the
Requirement for a Loan Authorization
9
  Federal Register :: Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the
Requirement for a Loan Authorization
10
   Ibid.
11
   Cardin Introduces Legislation to Codify SBA’s Community Advantage Pilot Program - Press Releases - U.S.
Committee on Small Business & Entrepreneurship (senate.gov)
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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.
we have been divinely appointed to create “possibilities” for the communities who need it most
through entrepreneurship, small business formation, job creation, and building generational
wealth. It is so impactful to see the zeal and hard work of the borrowers I work with when they are
given an opportunity to see what is “possible” after being faced with so many closed doors.
        AmPac has created “A Success Capital” micro loan product that provides Black and Brown
small businesses with a micro loan up to $50,000 using alternative underwriting guidelines, and
supporting them with training and coaching, or “wrap around services,” to support their success.
For businesses that attend three documented business trainings per year and make timely monthly
payments, we reduce their interest rate by half a point for the first three years and provide them
either a training grant or reduction in the principal of their loan. The Latina led bookkeeping firm
who has received this loan, after being denied multiple times by other lenders, has already reduced
her loan’s principal by $2,000 and her interest rate by 1 percent.
        After assessing barriers to entry to the 504 Loan Program for socially and economically
disadvantaged businesses, we surmised that the reason these businesses were not accessing the
program was not because they lacked the business acumen to do so, and not because they were not
paying rent that could have been replaced with a mortgage, but because they struggled to meet the
downpayment requirements. To address this issue, we raised $4 million in investment capital
through our CDFI from a social impact investor, Edwards Life Sciences in Orange County,
California, who set aside investment funds from their profit to support CDFI’s and non-profits
doing work to elevate wealth and economic parity for Black and brown communities. We have
used these funds to provide down payment assistance or liquidity replacement for these targeted
businesses to buy their building with the SBA 504 Loan Program. In 2022, we used almost $1
million of the investment to leverage over $39 million in commercial real estate loans to Black
and Brown businesses, who otherwise would not have been able to purchase their building. One
Black led business owner who grew up in poverty in the Bronx and runs an auto auction company
in Riverside, California, said that his greatest aspiration was to buy his mother a home of her own.
He used lessons learned from helping his mom to buy the building for his business. The down
payment assistance program and the SBA 504 Loan Program made IT POSSSIBLE.
        In addition to our efforts utilizing the 504 Loan Program, the Community Advantage Loan
Program has been game changing for us to serve small businesses and create more opportunities
for socially and economically disadvantaged businesses. I want to take time to acknowledge the
SBA Administrator, Isabella Guzman, and her team led by Patrick Kelley, who leaned in to hear
from lenders in the trenches to discuss much needed reforms to the Community Advantage Loan
Program. They spent months seeking to understand the barriers to entry and they executed on what
they heard from industry participants. Many of my colleagues who have done this work longer
than AmPac, especially in underserved communities, said they were CA lenders in name only until
the reforms adopted last year – they have been that impactful. They now have strong pipelines to
serve businesses since they can use the prudent credit guidelines that govern their CDFI and other
loan programs, and are not hindered by some of the collateral requirements and lending criteria in
the original CA guidelines that the businesses in underserved communities simply could not meet.
        I would like to share the following example of one of our Community Advantage
borrowers. Dr. Zuniga and Dr. Espinosa were referred to AmPac by a large bank who had to turn
down their loan. Although they had been medical doctors for five years, they worked for a practice
and did not operate a practice on their own. The owner of the practice promised that he would sell
them the practice and “carry paper” for them to become the next owner so they would not have to
worry about getting a loan. Later they learned the doctor had sold the practice to a large medical
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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.
conglomerate, which propelled them to start their own medical practice. They went to the bank
where they had their personal accounts, but the lender could not help because they were a start-up
with no business ownership experience, significant student loan debt, and a recent residential
mortgage. They did not meet the traditional 5C’s of credit. AmPac stepped in with our business
coach to help them create business projections and because of our credit policy, we were able to
place a UCC filing on the business and not require additional real estate collateral, which would
have been a challenge for the young couple starting a family and a business concurrently. Now
these doctors are providing needed medical care in their community.
        Finally, I offer the following recommendations as the Committee and the SBA, in
partnership with mission driven lenders like AmPac, continue working to ensure that socially and
economically disadvantaged businesses can access the capital and support they need to launch,
grow, and ultimately become bankable with the help of SBA’s lending programs:

           •   First, and most importantly, I believe we need to shift the narrative from
               “either/or” to welcoming all efforts to improve access to SBA’s lending
               programs. This shift in narrative moves us forward in a decades-long effort to
               realize the intention of the Small Business Act of 1953, “that the opportunity for
               full participation in our free enterprise system by socially and economically
               disadvantaged persons is essential if we are to obtain social and economic equality
               for such persons and improve the functioning of our national economy.”

           •   Second, Congress should pass Chairman Cardin’s and my representative,
               Representative Judy Chu’s, bill to make the 7(a) Community Advantage
               Program a permanent offering of SBA’s Office of Capitol Access. After
               operating as a pilot program for more than 10-years, and demonstrating that
               experienced mission driven lenders, like AmPac, can effectively increase SBA
               backed lending to businesses and entrepreneurs in underserved communities – the
               Community Advantage Loan Program has succeeded in meeting its intent and
               should be made permanent.

           •   Third, Congress should consider the capitalization challenges faced by
               mission lenders and work toward solutions to mitigate these challenges and
               enable us to reach more socially and economically underserved businesses.
               Unlike conventional bank lenders, mission driven lenders do not have access to
               capital sources like the Federal Reserve discount window. Thus, we spend a good
               deal of our time raising money to capitalize our loan funds. Non-profit mission
               lenders are the right lenders to reach underserved businesses, but as non-profits we
               face unique constraints that make every additional cost in funds, or in raising funds,
               translate to a reduction in the number of loans to the borrowers we are so passionate
               about serving. There is a myriad of ideas to make progress on this issue and those
               conversations should occur as Congress considers legislation and SBA considers
               the CA SBLC.




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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.
             •   Fourth, SBA should apply integral provisions from Chairman Cardin’s bill
                 in areas where the CA SBLC final rule lacks clarity for industry participants.
                 Those provisions include: the definition of underserved community; metrics for
                 success including target market and percentage of loans in that market; capital
                 requirements; and loan loss reserve requirements.12 Senator Cardin’s bill codifies
                 critical metrics to give Community Advantage, and Community Advantage
                 SBLCs, a bright line for who we are targeting, how much of our portfolio needs to
                 hit that target, and what we need to set-aside in terms of capital in order to maintain
                 SBA compliance. Metrics ensure effective management, and mission lenders are
                 committed to doing this work right so that these targeted communities can be
                 elevated, on purpose and with intention. I appreciate SBA’s efforts to create a
                 permanent pathway for CA lenders to become Community Advantage SBLCs –
                 this is an innovative approach to make the SBA’s 7(a) Loan Program accessible to
                 mission-oriented lenders committed to facilitating economic parity in meeting the
                 capital needs of socially and economically disadvantaged businesses.

       AmPac and the mission lending community will continue to provide small businesses with
every avenue possible to access capital through the SBA’s lending programs and we look forward
with anticipation to action of this Committee and at SBA to create more opportunities for socially
and economically disadvantaged businesses. I sincerely appreciate the opportunity to testify this
afternoon, and I look forward to answering any questions.




 Cardin Introduces Legislation to Codify SBA’s Community Advantage Pilot Program - Press Releases - U.S.
12

Committee on Small Business & Entrepreneurship (senate.gov)
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Hilda Kennedy – Testimony – AmPac Tri-State CDC, Inc.


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