Barker Testimony

Summary

Written testimony of Verlin "Gus" Barker, President and CEO of First Community Bank in Newell, Iowa, on behalf of the Independent Community Bankers of America, before the U.S. Senate Committee on Small Business & Entrepreneurship on September 18, 2024. It was prepared for the hearing on streamlining and coordinating support for rural small businesses. The testimony describes the role of community banks in disaster recovery in Iowa, including floods in 1993 and 2008, and states that SBA disaster programs face paperwork burdens and that SBA approval authority now resides in its San Francisco office. It recommends that SBA liens be limited to the value of the loan, that agencies offer disaster benefits as a package, and it urges support for a Farm Bill in 2024.

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                          Testimony of

                    Verlin “Gus” Barker


              President and Chief Executive Officer

                      First Community Bank
                          Newell, Iowa


                         On behalf of the

  Independent Community Bankers of America

                            Before the
                      United States Senate
        Committee on Small Business & Entrepreneurship


                           Hearing on

“Streamlining and Coordinating Support for Rural Small Businesses”



                       September 18, 2024
                        Washington, D.C.
Opening


Chair Shaheen, Ranking Member Ernst, and members of the Committee, I am Gus Barker, President and
CEO of First Community Bank, headquartered in Newell, Iowa. Thank you for convening today’s
hearing on “Streamlining and Coordinating Support for Rural Small Businesses.” I testify today on
behalf of the Independent Community Bankers of America where I am Chair of the Rural America and
Agriculture Committee and a member of the Board.


First Community Bank is a $115 million asset bank with 25 employees. We serve four rural
communities in northwest Iowa: Newell, Pomeroy, Rockwell City, and Fonda. Founded in 1912, we are
in the third generation of family ownership. First Community Bank specializes in agricultural lending of
all types, rural small businesses, and one-to-four family homes.


Community banks such as mine have served rural America for decades and play a vital role in the
economic prosperity of thousands of small communities, supporting small businesses, farms, and
families. According to the FDIC, community banks are the only physical banking presence in one in
three counties in rural America. Specializing in small business and agricultural lending, community
banks are responsible for the majority of Main Street small business loans and 70 percent of bank
agricultural loans.


In view of the recent flooding in northwest Iowa, I want to put a special focus on community banks’
support for rural small businesses in the wake of natural disasters. In times of crisis, community banks
demonstrate their irreplaceable value by providing critical resources, counsel, and comfort in their
communities. I am grateful for the opportunity to share the community bank perspective on this
important topic.


Prompt and Effective Disaster Recovery Is Critical to Future Prosperity


Iowans have repeatedly proven their strength and resilience in the wake of natural disasters. I credit our
close-knit rural communities where neighbors are always ready to sacrifice for one another in times of
crisis – a quality found not only in Iowa but in thousands of rural communities across America.


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As a 47-year-Iowa community banker, I’ve lived through the Great Flood of 1993, one of the most
destructive American river floods in recent memory. Again in 2008, flooding along the Mississippi river
devastated Iowa communities. Like other midwestern states, Iowa has experienced tornadoes and
droughts which have laid waste to our most precious economic resource, our crops and livestock. In
June of this year, severe flooding in Rock Valley caused significant damage from which the local region
is still recovering.


Experience has convinced me that the best solutions are local. Community banks have always been on
the frontlines of disaster-recovery efforts in Iowa. I’m proud that local families, farms, and small
businesses have turned to me in their time of need and that I have been able to provide resources,
guidance, and friendship to help them survive, rebuild, and get back on their feet. Federal programs will
never displace local community banks, which are always ready to provide vital resources at a moment’s
notice and without bureaucratic obstacles.


SBA Disaster Recovery Programs


SBA direct lending and other federal disaster-recovery programs have always played a critical role in
the survival of numerous disaster-stricken businesses. Unfortunately, these programs are mired in
bureaucratic hurdles which obstruct timely access to critically needed resources. Disaster victims are in
no position to complete excessive paperwork to obtain the resources they desperately need.


In the historic flooding of 1993, I worked with a customer in eastern Iowa who was in dire need of SBA
assistance. He sought my assistance in completing the agency’s overwhelming paperwork, and I was
happy to help because I wanted to ensure the recovery of his business. Without SBA funding, its
survival was in doubt.


The paperwork burden was daunting. The owner’s wife and I spent many hours writing histories and
explanations to justify the loan, including five-year financial projections. Several revisions were
required before the SBA was satisfied with the application. The business was finally able to get a loan
that helped keep the business operating. That business not only survived but has now been passed onto
the next generation and continues to operate.


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The support of the local SBA office was critical to the success of the application and the survival of the
business. When there is no local office with loan approval authority, the application process is much
more difficult for the borrower. Unfortunately, the SBA removed approval authority from its Iowa office
some years after the catastrophic flooding of 1993, leaving behind only informational resources. Today,
SBA approval authority resides in its San Francisco office. I have found it difficult if not impossible to
work with agency staff at this distance. A local bank has a better understanding of the market,
established customer relationships, and a vested interest in the success of the community. The same is
true of a government agency. A local presence is critical to its effectiveness.


Disaster Victims Often Seek Community Bank Solutions


Among the worst hit towns in the catastrophic flooding of 2008 was Waverly, Iowa on the Cedar River.
The river crested at nearly 20 feet, inundating the town and requiring evacuation. I was with a local
community bank in Waverly at that time. It was clear that support from SBA and FEMA would not be
enough to support the recovery. Flood victims sought the help of their local community banks. They
needed an immediate solution and were intimidated by the paperwork required by federal agencies. To
support rebuilding, my bank joined efforts with two other local banks to promptly extend some 50 loans
to impacted businesses and families.


Despite the inherent risk of lending to disaster victims, the loans were repaid with no delinquencies. I
believe the strong performance of these loans reflects the common commitment of borrower and lender
to the community. The crisis strengthened our relationship, which explains our low default rates.


This was not an isolated case. I have extended private loans in a number of natural disasters in Iowa.
Interest rates are typically discounted and considered an investment in the community toward economic
development. Of course, these are not grants but loans, and as prudent lenders, we file documents to try
to secure them. However, we recognize that a loan to a disaster victim is under secured and risky until
rebuilding is complete. Disaster lending of this type takes patience and understanding from the bankers
and regulators to allow for recovery. This is very much a core part of our mission of community service.




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Suggestions for Improved Coordination Among Agencies and Private Lenders


I want to share with you some specific problems that I have seen in coordination among the agencies
and with private lenders in disaster recovery.


Excessive Leans


SBA is known to file liens far in excess of the loan amount to secure their mortgages. A peer Iowa
banker recently told me that the SBA had filed liens of $2 million on properties where the loans were
only $200,000. Because SBA liens are in primary position, they tie up their collateral and prevent a
community bank from helping the borrower in any way. SBA refuses to subordinate its loans in the way
that USDA, for example, does.


We recommend that SBA liens be limited to the value of the loan and that the SBA be willing to
subordinate its liens when circumstances warrant.


Duplication of Benefits


In the wake of a disaster, both FEMA and SBA set up a local office and staff to help with assistance
applications. Each agency has its own requirements and limits. Unfortunately, they don’t coordinate a
package of available benefits. FEMA provides grants of limited value. SBA provides low-interest rate
loans that are nevertheless costly to borrowers in other ways. As noted above, an SBA loan ties up the
borrower’s collateral in excess of the loan value and limits the borrower's options in the future. A
disaster victim cannot combine benefits and is forced to choose which program to use, though neither
program provides adequate relief in itself. For example, I understand that FEMA funds allocated to
Spencer, Iowa for relief from the recent flooding are only enough to cover reconstruction of half of the
buildings.


I believe it is too much to ask of disaster victims to learn the details of the competing programs, keep
them straight, and make an informed judgement. They come to their bank for help, though we often
don’t have any more information on government disaster programs than they do. We recommend that


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benefits offered by different agencies be available as a package to ensure availability of adequate
resources to disaster victims.


Support for the Farm Bill


Before I conclude this statement, I take the liberty of urging this Committee’s support for advancing a
meaningful Farm Bill in 2024 or, failing that, additional ad hoc assistance that addresses deteriorating
conditions in farm country resulting from falling commodity prices. Given the enormous challenges
facing production agriculture – including a farm economy that has taken a downward spiral – it is
imperative Congress act before year end to strengthen farm policy and help prevent a disaster in rural
America. Enactment of a new Farm Bill or an aid package that strengthens the safety net is urgent for
the many producers that may face years of red ink, eroding their financial reserves and equity and
making long-term business planning much more difficult.

Closing


Thank you again for raising the profile of a critical issue for Iowa and the nation. We need to ensure that
disaster victims get the assistance they need on a timely basis and without needless bureaucratic hurdles.
Community banks have a vested interest in the prosperity of their communities and are always ready to
help with private loans or in coordination with SBA and other agencies. We appreciate the support of
this Committee in streamlining and coordinating support for rural small businesses, farms, and families.


I’m happy to take your questions.




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