Congressional Hearing — Oversight of SBA's COVID Economic Injury Disaster Loan Program (Senate, 2022)
Summary
Printed Senate hearing record, S. HRG. 117–731, titled Oversight of SBA's COVID Economic Injury Disaster Loan Program, before the Committee on Small Business and Entrepreneurship on August 2, 2022. Patrick Kelley, Associate Administrator, Office of Capital Access, U.S. Small Business Administration, is the listed witness. In the opening statement, Chairman Cardin says the SBA announced the program on May 7th, 2020 with a $150,000 cap, and that by July 20th the SBA had entered into 3.1 million loans for $169 billion. It also says the 3.9 million COVID EIDL loans issued since April of 2020 are more than all loans issued during the entire history of the disaster loan program. Cardin also describes confusion and frustration over SBA notices about exhausted funding.
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“Congressional Hearing — Oversight of SBA's COVID Economic Injury Disaster Loan Program (Senate, 2022).”
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S. HRG. 117–731
OVERSIGHT OF SBA’S COVID ECONOMIC INJURY
DISASTER LOAN PROGRAM
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
AUGUST 2, 2022
Printed for the use of the Committee on Small Business and Entrepreneurship
(
Available via the World Wide Web: http://www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
50–573 WASHINGTON : 2023
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SEVENTEENTH CONGRESS
BENJAMIN L. CARDIN, Maryland, Chairman
RAND PAUL, Kentucky, Ranking Member
MARIA CANTWELL, Washington MARCO RUBIO, Florida
JEANNE SHAHEEN, New Hampshire JAMES E. RISCH, Idaho
EDWARD J. MARKEY, Massachusetts TIM SCOTT, South Carolina
CORY A. BOOKER, New Jersey JONI ERNST, Iowa
CHRISTOPHER A. COONS, Delaware JAMES M. INHOFE, Oklahoma
MAZIE HIRONO, Hawaii TODD YOUNG, Indiana
TAMMY DUCKWORTH, Illinois JOHN KENNEDY, Louisiana
JACKY ROSEN, Nevada JOSH HAWLEY, Missouri
JOHN HICKENLOOPER, Colorado ROGER MARSHALL, Kansas
SEAN MOORE, Democratic Staff Director
WILLIAM HENDERSON, Republican Staff Director
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CONTENTS
WITNESS PREPARED STATEMENTS
Panel 1
Page
Mr. Patrick Kelley, Associate Administrator, Office of Capital Access, U.S.
Small Business Administration, Washington, D.C. ........................................... 5
QUESTIONS FOR THE RECORD
Mr. Patrick Kelley, Responses to questions submitted by Chairman Cardin
and Ranking Member Paul, Senator Shaheen, Senator Duckworth, and
Senator Inhofe ...................................................................................................... 36
ADDITIONAL STATEMENTS FOR THE RECORD
New Jersey Business Alliance, Statement ............................................................ 65
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OVERSIGHT OF SBA’S COVID ECONOMIC
INJURY DISASTER LOAN PROGRAM
TUESDAY, AUGUST 2, 2022
UNITED STATES SENATE,
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP,
Washington, DC.
The Committee met, pursuant to notice, at 10:00 a.m., in Room
428A, Russell Senate Office Building, Hon. Ben Cardin, Chairman
of the Committee, presiding.
Present: Senators Cardin, Shaheen, Hirono, Rosen, Hickenlooper,
Scott, Ernst, Young, and Marshall.
OPENING STATEMENT OF CHAIRMAN CARDIN
Chairman CARDIN. The Small Business Committee will come to
order.
Before I give my opening statement in regard to today’s subject
I do want to express all of our concerns about the devastation that
is taking place in Kentucky. The flooding has been just horrible to
see. We know these natural disasters are very, very hard on a com-
munity, and our prayers are with those that have been victimized
by the flooding. And we recognize there are many needs to how we
respond as a nation to deal with this natural disaster, and I know
our country will do everything we can. We see the resiliency of the
people of Kentucky.
I say that particularly knowing that our Ranking Member, Sen-
ator Paul, represents the great state of Kentucky, and our thoughts
are with them.
I also recognize that small business relief is only one part of that
recovery, but I commend the SBA’s announcement yesterday to
provide relief to small businesses, nonprofits, homeowners, and
renters in the region. The Small Business Committee will work
with the SBA to get this information out to the affected areas to
help the people of southeastern Kentucky get back on their feet.
I want to thank Senator Paul for his cooperation in arranging for
today’s hearing. It has been a challenge on scheduling. Thank you,
Senator Ernst, for stepping up and being willing to take on the re-
sponsibilities. I know Senator Paul had a conflict, and we certainly
understand that, but he cooperated with us and Senator Ernst is
available, and I thank her for being able to take on this position
today.
And let me thank Patrick Kelley, the Associate Administrator,
Office of Capital Access, at the Small Business Administration, for
being here today and being willing to help us understand where we
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are in regard to the EIDL program.
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One of the most important functions of this Committee is over-
sight. Yes, we want to pass the right policies and make sure that
they are adequately drafted and funded, that you have the re-
sources and the direction you need. But then it is our responsibility
to make sure these programs are being carried out as effectively as
possible. So we look at today’s hearing, which is to oversight the
Economic Injury Disaster Loan Program during COVID, and recog-
nize that this was an incredible undertaking.
On April 24, 2020, $50 billion of subsidy was provided for the
Economic Injury Disaster Loan Program under COVID. On May
7th, 2020, the Small Business Administration announced the pro-
gram and imposed $150,000 cap. Even though this program, under
law, allows for loans up to $2 million, the Trump administration
decided to limit that to $150,000 cap.
We were not happy about that, and members of this Committee,
as well as many members of the Senate, expressed our concern
that that $150,000 cap was arbitrary, and we wanted to see that
implemented at the full amount that Congress authorized, at $2
million.
But by July 20th, the SBA had entered into 3.1 million loans, for
$169 billion. Now I will repeat that again—3.1 million loans by
July 20th. On April 21st of this year, the Biden administration in-
creased the cap from $150,000 to $500,000, and then, in Sep-
tember, increased it to the full $2 million. We were all very pleased
about that announcement, and we were very pleased that we were
able to increase the total amounts available to the $2 million limit.
The Biden administration deserves high marks for implementing
the congressional intent at $2 million. The SBA administered the
program and now there are almost 4 million loans that have been
issued under the COVID EIDL program. That is quite a record.
Over the past two years, the SBA has transformed a relatively
small and unknown program, intended to support communities fol-
lowing natural disasters, into one of the Federal Government’s pri-
mary tools to combat the economic impact of COVID–19 pandemic.
The 3.9 million COVID EIDL loans the SBA has issued since April
of 2020, are more than all the loans that have been issued during
the entire history of the disaster loan program. That just tells you
how much additional responsibilities the SBA took over and how
they delivered on those programs.
The EIDL loan program is a source of hope for small businesses.
It is the critical capital they need during a pandemic. It provides
a fixed-rate, low-interest, long-term capital that is absolutely essen-
tial for small businesses. They do not have the resiliency. This
gives them the hope of being able to stay in business.
In December of last year, December 31st, no new applications
were allowed, under law, and the SBA basically closed the process
for new applications.
Here is where the confusion and frustration comes down, on the
winding down of the program, and here is where we are really baf-
fled as to the way, and information that we have received from the
SBA.
First, on May 6th of this year, the SBA said that funding was
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exhausted. On April 28th, they had set the deadline for loan modi-
fications, appeals, and denials for reconsideration. Yet on May
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11th, we were informed by the SBA that it had $1.3 billion, a
transfer of funds from the American Rescue Plan, and $1.2 billion
available in regard to cancelled loans. So we did not understand
that they gave the explanation on May 6th, the SBA, that funding
had been exhausted. They sent another notice on May 16th that all
workable files had been processed.
So what I am confused about, we have a large number of small
business owners that are in the process, with their SBA EIDL loan,
receiving information from the SBA that they have exhausted fund-
ing and that all workable files had been made, and yet they have
not been notified in regard to their individual cases.
On June 22nd, applications could still not be processed because
of lack of funds, another statement made by the SBA, yet in June,
on a staff call with Administrator Kelley, we were informed that
$800 million remained in the EIDL program.
There is frustration and anger out there. We have 41,000 appli-
cants who have never received determinations. We have 125,000
applicants that have been approved that have not received their
funds.
Now I can tell you, I talk to my state workers all the time that
handle the calls from the small business community. They are my
frontline workers. And there are small business owners that are
really frustrated. They have gotten inconsistent information from
the SBA. They believe their applications have never been litigated,
never been completed, and they want to know why. They want a
straight answer. As I said earlier, the small business community
is the growth engine of our country. It is where innovation takes
place. But small business owners do not have the same deep pock-
ets and resiliency. They need to know what is going on with their
applications, and if they are ineligible then declare them ineligible.
Let them handle it or take an appeal, but do not leave them in the
lurch.
So I hope that this hearing will have an opportunity to get an-
swers to those questions and that we can have the completion of
the EIDL loan program done in a way that represents the values
of our Committee and a policy that we developed and the values
of the program that is so important to small businesses.
And with that let me turn it over to Senator Ernst.
OPENING STATEMENT OF SENATOR ERNST
Senator ERNST. Thank you, Senator Cardin, and I also want to
express my sympathies to those families and those communities
that were impacted in Kentucky. I think all of us are watching and
praying for the best but understanding that this is a very difficult
time for them, so thank you for mentioning that.
And thank you, as well, Chairman Cardin, for holding this im-
portant hearing to discuss the SBA’s lending and disaster assist-
ance programs. And before we move forward any further on this I
cannot overstate how harmful inflation has been for small busi-
nesses in Iowa and throughout the nation. As part of my 99–county
tour across Iowa I speak with those small business owners who are
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continuing to tell me how record-setting levels of inflation have cre-
ated a significant financial burden across their value chains.
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The most recent Consumer Price Index report shows that prices
increased by 9.1 percent over the last 12 months, the largest year-
over-year increase in over 40 years. Over the same period, the Pro-
ducer Price Index increased by 11.3 percent, indicating that most
small businesses are experiencing increasingly diminished margins,
impacting their ability to provide paychecks to working families,
especially those that reside in my rural communities.
Small businesses are the backbone of the American economy, and
despite being told otherwise, small business owners know the im-
pact of inflation on their businesses is not transitory and it is prov-
ing not to be short term. This inflation crisis has created a hidden
value-added tax that has deeply impacted their economic security,
which is why it is deeply troubling to me that the Democrats in
Congress plan to move forward with a reckless, partisan tax and
spending spree focused on raising taxes to pay for electric vehicles
for the rich, hamstring our manufacturers, and all sorts of other
pet projects of far-left interest groups.
The COVID Economic Injury Disaster Loan Program, or EIDL,
provided support for small businesses facing financial hardship as
a result of the COVID–19 pandemic. As the rush of pandemic aid
went out the door, bad actors took advantage of the American tax-
payer’s generosity. We now know fraudsters bilked millions and
millions from SBA in fraudulent loans from this program.
But as it transitions from supporting small businesses to serv-
icing loans, I am concerned about the SBA’s lack of attentiveness
to ensuring law enforcement has everything it needs to pursue
those who have defrauded the taxpayers. Wrongfully awarded dol-
lars must be returned to the program and returned to the Amer-
ican taxpayer. Timely action is needed in order to do so.
In a similar vein, the SBA has unlawfully approved nearly $100
million in forgivable PPP loans to Planned Parenthood affiliates. To
make matters worse, the SBA forgave 34 of these loans, despite it
being a clear violation of the affiliation rule. Yet to date the SBA
has not launched an investigation into this issue or made any effort
to recoup the ineligible funds.
It is critically important to protect the integrity of the capital ac-
cess programs that are intended to provide support to small busi-
nesses from fraud and ineligible distributions.
Mr. Kelley, thank you for appearing before us today. I look for-
ward to working together in the future to ensure that taxpayer
money is protected from fraud and that bad actors are held ac-
countable. Thank you.
Thank you, Senator Cardin.
Chairman CARDIN. Thank you very much for, again, taking on
the responsibility today.
I want to ask consent to put into the record letters that were
written to Administrator Guzman on May 6, 2022, from Senator
Van Hollen and myself, and July 15, 2022, from a group of Sen-
ators, headed by Senator Cornyn and myself, in regard to our con-
cerns as to why certain information as given to our constituents
when we were told that there was money available.
Chairman CARDIN. Administrator Kelley, thank you again for
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being here. As I had pointed out earlier we appreciate your leader-
ship on this program. The Office of Capital Access is critically im-
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portant to small businesses. The role of that committee has quad-
rupled, maybe more than that, since COVID–19, so we know that
you have stood up an agency that was meant for a certain purpose
that was really tested to its limit. And we thank you very much
for your service and thank you for being here, and you may pro-
ceed.
STATEMENT OF PATRICK KELLEY, ASSOCIATE ADMINIS-
TRATOR, OFFICE OF CAPITAL ACCESS, U.S. SMALL BUSINESS
ADMINISTRATION, WASHINGTON, DC.
Mr. KELLEY. Great. Thank you, Chairman Cardin, thank you
Senator Ernst. I too want to extend my sympathies to the Com-
monwealth of Kentucky. Obviously, 35 families to date no longer
have a loved one, and there are hundreds of others that have not
been found.
As Chairman Cardin mentioned in his opening statement, Presi-
dent Biden declared a disaster area for the five counties, and obvi-
ously we will work to expand that, if necessary, and obviously work
to help all of the survivors.
On behalf of Administrator Guzman, I am happy to be here with
the Committee today to answer any and all questions. My name is
Patrick Kelley. I am the Associate Administrator of the Office of
Capital Access at the SBA, and I have been since March 1st of
2021.
First I would like to echo the Chairman’s comments regarding
the work of the civil servants at the SBA. It truly is a privilege for
me to have a second opportunity to work with people during a time
when so much was asked of them for the last 24 months. On bal-
ance, these are some of the best people I have ever worked with,
across the private sector and the public sector, and I will continue
to enjoy the opportunity to serve the American people with them.
We oversee a bunch of different CARES Act and Economic Aid
Act programs, and COVID EIDL is certainly a focus today. That
particular program, as was mentioned by Chairman Cardin, serv-
iced about 4 million small businesses and roughly $400 billion in
financing. Seventy-two percent of those loans went to small busi-
nesses with 10 or fewer employees. Fifty percent of the recipients
were not able to access the PPP program. So I think one of the
great success stories about this, what I have characterized as an
uber-credit-not-available-elsewhere program, is its success getting
to all corner of our society.
In addition to the COVID EIDL program, just to provide an up-
date for you and the members, we are obviously working on for-
giveness in the PPP program. We are currently approaching 10.4
million loans out of the 11.4 million forgiven, and we expect that
the remaining 1 million will seek forgiveness this fall as the April/
May/June 2021 PPP loans hit their 10-month mark and begin to
make payments.
We have provided direct forgiveness to assist 1,500 lenders,
which has amounted to 2 million loans being serviced by the SBA
on behalf of lenders and borrowers to assist with that forgiveness.
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That particular program also coincided with obviously the Res-
taurant Revitalization Program.
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I do want to thank the Chairman’s leadership on the restaurant
program. We worked diligently to roll that out, with members of
this Committee’s staff as well as the House, and 101,000 busi-
nesses were supported, for $28.6 billion.
The last thing that I will add before we get to the questions,
which I am looking forward to hopefully helping folks understand
what we are trying to accomplish, is just to provide some context
to the breadth of what the SBA was asked to do. The Office of Ad-
vocacy at the SBA estimated that in 2021, a total, for small busi-
ness and medium-sized enterprises receiving capital from any
source, any private sector lender, was $651 billion. In the COVID
EIDL program, in 2021, we put out $200 billion on top of the $167
billion that the Chairman referenced in 2020.
So it is absolutely the case that the SBA has played an outsized
role, as Administrator Guzman has worked with this Committee
and the nation to provide. Thank you.
[The prepared statement of Mr. Kelley follows:]
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Chairman CARDIN. Well again, thank you, and I agree with your
last statement. The SBA had played an outsized role, and there is
no question about it. It stepped up during the pandemic, and I
agree with you on the civil servants, and I give our real thanks to
the incredible amount of work that they put out to help out quick-
ly, both with the PPP program and the EIDL loan program, the
EIDL Advance program, and then later with the Shuttered Venue
and the restaurant program. So it was an incredible effort, and it
saved small businesses, that exist today that would not have but
for the ability to get those programs out.
And as we point out, this has all been bipartisan. The bills were
developed bipartisan, and this hearing, in regard to how the EIDL
program is being wound down, there is bipartisan interest to see
it done right.
So I want to get the numbers right because we had like 3.9 mil-
lion loans that were given out. We have, we think, 41,000 people
who are looking for determinations that have not yet been done.
We have seen, at times, the SBA say that these are unworkable,
but to our knowledge those 41,000 small businesses have not been
informed as to their status. So they are sitting out there hoping
that they are going to get a positive response, but they want a re-
sponse. They want to move on with their life. They want to know
whether they can or cannot access the funds, because they have to
plan their businesses, and we believe there are 41,000 that are in
that status.
And then we had 125,000 small businesses that thought they
were going to get their funds, thought they had been approved for
the funds, and have not gotten their funds. And then they get no-
tices that there are not funds available, but yet we have been told
that there is money there. So the funds are there. So it seems like
they are not getting accurate information, which is extremely frus-
trating. And they call our office, and they call your office, and they
call every Senator in this country with legitimate concerns.
So can you clarify the numbers for us? How many applications
are still pending? Are they workable or not workable? Why have
the small businesses not been notified? And are there applications
that have been approved but have not been acted upon, and for
what reason would that be?
Mr. KELLEY. Yes, I will get to all of that. So first I just want to
start off the top with the 125,000 first, so we can address that. The
125,000 folks have obligated funds to them. They could close those
today with the assistance of an SBA district office, directly them-
selves with the call center for the specific COVID EIDL program.
But that money is theirs. We will not cancel those funds. Obvi-
ously, at some point, you know, later this year we will send out no-
tice and start to see if folks want to seek this. Obviously, it is a
loan product that has to be paid back, obviously, very favorable
terms. But still, nevertheless, a loan product.
So at their discretion, each of those 125,000 can close that loan.
I welcome the opportunity to make sure that anybody, in any of the
offices, is clear that those folks have money and can be funded.
Chairman CARDIN. And those funds are there.
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Mr. KELLEY. Yes.
Chairman CARDIN. There is no problem of collecting the funds.
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Mr. KELLEY. Correct. And I start there to then move to the
41,000, because prior to—I believe my testimony in the House was
the week of May 16th, and during my testimony it was timely be-
cause we were in the period of time where applications received on
or before May 6th, I indicated in the House that there were roughly
61,000 of those, two-thirds of which were roughly loan increase re-
quests, and a third of those were reconsiderations. And I said dur-
ing that testimony that we would get to all of those files prior to
May 16th, and we would decision those files.
So 38 percent of the two-thirds—so if we are keeping track, 38
percent of 40,000 files were decisioned and were approved and obli-
gated funds and either sit in that 125,000 bucket or have already
closed their loan and been disbursed.
With respect to the final third, the reconsiderations, I indicated
at that time, and it held true, that reconsiderations are decisioned
successfully, meaning you ask for a reconsideration, the SBA recon-
siders it and says, ‘‘You know what? On hindsight you are correct.’’
Two out of 10 times the SBA reverses a prior decision.
It is important to understand that 92 percent of the 41,000 did
receive a loan and a prior decision in 2021, regarding their increase
request, or in 2022, had been indicated what documents they were
missing, which is one-third, or two-thirds of that number—I realize
I am throwing a lot of data here, but as the Chairman asked to
get into the numbers—two-thirds of that number has either not
filed taxes from 2019. So it is important to understand that you
could file an extension and that the extension period tolled within
the fall of 2020. So these are 2019 tax returns with no filing.
There was a filing once in 2021, when the program resumed, a
historic practice at an SBA program. So to Senator Ernst’s com-
ments about fraud, waste, and abuse, historically the SBA has al-
ways validated tax verification through the 4506–T process. The
CARES Act required the SBA to forego that provision, and the Eco-
nomic Aid Act replaced that.
So in addition to not filing or filing late there is a third category
of filers who, upon learning that their increase request was not
validated by the filing that they put forward for 2019, proffered an
amended filing return that, coincidentally, coincided with the re-
quest that they were seeking. So it is really important to under-
stand that yes, there were communication challenges with trying to
indicate, first, we are seeking all comers in the five months fol-
lowing the program’s formal conclusion.
12/31/2021 was the last day that in the program, by law, anyone
could submit a new application. As Chairman Cardin mentioned,
since 92 percent of the loans, or 3.6 million from 2020, had from
April of 2021 until May 6, 2022, to seek a loan increase. And the
reason I use the April time frame instead of the September 2 mil-
lion threshold is because the average loan increase was $200,000.
So it is absolutely the case that these folks are frustrated. It
should be mentioned that 75 percent of the 41,000 files are from
NAICS codes that Congress indicated were not impaired by the
pandemic. As you know, in the Economic Aid Act, Congress des-
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ignated specifically industry segments, which was appropriate—
hospitality, restaurants, et cetera. Seventy-five percent of the re-
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15
maining requests are from industries that were not designated as
significantly impaired by the pandemic.
I lent money for six years to small businesses for a community
bank based in Wilmington, North Carolina, and the CEO of that
company’s line to us is the only two questions that a borrower
cares about is am I approved and when do I get my money.
And so I understand that from a borrower’s perspective ‘‘no’’ is
a suboptimal outcome. But given the fraud, waste, and abuse that
this Committee has highlighted for the last year and the reforms
that the Economic Aid Act began, and the Biden-Harris adminis-
tration extended to address fraud, waste, and abuse, we cannot ex-
tend loans to folks who have not paid their taxes.
Chairman CARDIN. I understand exactly, and we want you to
verify. But recognize that during COVID–19 we gave relaxations on
filing returns. So not all the documentation is there, and it is not
always the small business owner’s fault. They may very well be en-
titled. They just have not been able to because of the pandemic, to
dot every I and cross every T.
So I am interested in how many files today are there still open,
where the small business owner has not been informed. If you re-
ject, they can file an appeal, so they have that right. But if you do
not reject and they are in sort of an open status, they do not know
what the future has. How many EIDL applications are still pend-
ing, where there has not been a finite answer given by the Small
Business Administration?
Mr. KELLEY. So Chairman Cardin, every single person—and I
know this because we have worked with your staff, Committee
member’s staffs on a daily basis, and my colleagues here from Leg-
islative Affairs work on a daily basis. We receive email accounts,
both your office and our office, and in those email accounts—and
I read them daily, so I read each one each day, because it is an
easy way for me, in public service, to have an impact that day. It
is directly tangible. I can either help somebody unblock something
or I can get to a solution.
In each of those email correspondences there is an indication, by
the borrower, of multiple instances, and several different times
over the balance of however long they have been seeking a loan in-
crease, of interaction and communication with SBA employees, ei-
ther at the district office or directly with the loan officers them-
selves. To say that they have not been notified of the challenges
facing their files I believe understates the totality of the cir-
cumstances.
Where, in the most recent cases—so since the program stopped
considering reconsiderations and loan increase requests in May—
the emails that come in are either, as I said, in the obligated fund-
ed category, in which we work then to assist them with how they
can close that loan if they want to close that loan, or they are al-
most entirely in the category related to a tax issue.
So 41,000 is obviously a deafening amount of voices, because if
you took 50 states and divided it by that, that is roughly 800 calls.
So your colleague, Senator Van Hollen, on that staff call that you
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mentioned, referenced 1,200 calls, which, at the time, if you did 50
by 1,200, that is roughly 61,000 when we had the call.
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16
And so it is totally understandable that your offices are frus-
trated, that the borrower who, in 2020, the Federal Government al-
lowed them to seek a loan product without any verification of
whether they had filed taxes or could demonstrate the gross sales
receipts number and the cost of goods sold number, integral to the
economic injury calculation, and they say to us, collectively, ‘‘But
you gave me money. Therefore, I am eligible.’’
And in the sense that their business is small—as I mentioned,
the overwhelming majority of these are 10 or fewer employees, so
they are, by anybody’s definition, small—totally true. But in the
sense that we can make a reasonable reassurance of repayment
from the cash flow of the business, and verify that they filed their
taxes, we cannot do that.
Chairman CARDIN. I understand what you are saying, and I
think we are like two ships passing in the night. We are hearing
from the borrowers that they requested additional information,
they supplied that additional information, they did not hear back
from the SBA, their application is still pending. They get a notifica-
tion that there is no money available and now they hear that
money is available. Then they get notification that all files are un-
workable, but they think their case is still pending. That is where
the frustration is occurring, and we need to know the numbers.
I will come back on a second round. Senator Ernst.
Senator ERNST. Yes. Thank you, Mr. Chair. And just a quick,
easy—I hope it is easy—question for you. Do taxpayers deserve an
SBA that is transparent and accountable to Americans in how it
spends their money?
Mr. KELLEY. Yes.
Senator ERNST. That is great. Thank you. I do agree with that
as well. And your office has received recommendations from both
the inspector general and the GAO on both PPP and COVID EIDL,
many of which are pretty common sense, including continually as-
sessing the COVID EIDL program and developing portfolio-level
data analytics to help identify fraudulent loans and fraud risk fac-
tors. Yet these recommendations and others have remained open
for more than a year while watchdogs have identified billions in
fraud, and law enforcement prosecutes fraud case after fraud case.
And I have heard from a lot of Iowans who said that PPP and
COVID EIDL loans were helpful for them in the early days of the
pandemic, but when we listen to Inspector General Ware, he is
right when he says that PPP and COVID EIDL have unprece-
dented levels of fraud. So it has been helpful, but there is a lot of
fraud ongoing in these programs. And we have all seen this story
about the BMW with the license plate PPPLOAN. You know, this
is Manhattan, in New York. And we have seen so many of these
cases. I do not think the program was there for folks to buy brand
new Beamers.
But as the programs are winding down and they are shifting to
the fraud identification phase, I am concerned that it seems every-
body cares about fraud mitigation and prosecution except maybe
the folks in your office, and we really need the SBA to step up on
this.
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So will you commit to implementing each of the recommenda-
tions the OIG and GAO have made to your office so that we can
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actually limit the waste, the fraud, and the abuse of our taxpayer
funds?
Mr. KELLEY. Yes, and we have. What Inspector Ware also men-
tioned in his testimony, specifically, is that under the Biden-Harris
administration we have made great progress on the items you have
identified. Specific to the COVID EIDL program—and what I am
going to do is list the choices made in the previous administration
during 2020, that were not in place, and these changes were made
in 2021, by the Biden-Harris administration.
First, verifying business address. There is an easy, fast, speedy
way to verify a U.S. postal address through API. They did not do
that.
IP static address. Again, another automated—and the theme that
I will continue to come back to is this false distinction that you
could not have speed without certainty. We restored speed and cer-
tainty. We made 6.1 million PPP loans in the same amount of time,
same amount of months, but we did that with a fraud framework
ahead of the E-Tran authorization.
In addition, we have talked about the 4506–T, which, again, Con-
gress corrected in the Economic Aid Act, and we instituted.
As was mentioned in the IG findings in 2020, in the RER RAPID
portal, borrowers were allowed to switch their bank accounts. That
is a red flag for any financial service company, it is not something
that is necessary for speed, and we restored preventing that from
happening. And you see that, actually, in the comments regarding
the ACH disbursements going over to Treasury and some of the
challenges with banks flagging suspicious activity.
In addition, we restored the Rule of 2 and manual reviews for all
fraud flag related to individual loan files. This is particularly im-
portant because the IG referenced, in the COVID EIDL program,
that there were bulk filings, where despite having fraud flags fire
on those particular loan applications, they were waved through in
2020.
Specific to the PPP program and the challenges that were high-
lighted in 2020 there, specifically the Secretary of the Treasury at
the time required SBA to process E-Tran authorizations in real
time. For any bank of financial service company or payments com-
pany, that is near impossible. There are three core accounting sys-
tems on Planet Earth that banks use—Jack Henry, Fiserv, the FIS,
and I am sure there are other brands but those are the three that
lead—they cannot process in real time reconciliation. So by allow-
ing E-Tran authorizations to be granted in real time, which they
never had been before and will not again, it led to 50,000 duplicate
loans.
In addition, there were bulk processing choices that were made
in Phase 2 that were provided to banks to move through, which the
IG has correctly pointed out led to a host of issues with respect to
duplicate loans as well as challenges with respect to the loan cal-
culations.
I can keep going, but what I want to assure you, Senator Ernst,
is that under Administrator Guzman and under the Biden-Harris
administration we have worked with the IG every day. The reason
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that this Committee does have the data that Chairman Cardin has
talked about, on both programs, on all programs, is because unlike
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18
our predecessors who went to court to block the access for the
American people to the data of the programs, we have made all
data available.
So it is absolutely the case that we will continue to prioritize
fraud, waste, and abuse. It is something that we do not have to
sacrifice speed. So I want to assure the borrowers out there, back
to my points about am I approved and when do I get my money,
you can go fast in the 21st century but you can go fast with sen-
sible controls all through automated.
And the last thing I will say on this particular point, with re-
spect to PPP, is that we put in, beginning in January of 2021, for
6.1 million PPP loans, a fraud control framework which enabled us
to validate all manners of eligibility and compliance as well as
know-your-customer principles of individual identity and business
identity.
So before you could get a PPP–3 second-draw or first-draw loan,
whether or not the nonbank lender ran a fraud protocol, the agency
ran that fraud protocol. And but for the holds that we place on
loans, that lenders needed to work with us and borrowers needed
to work with us to overcome, where we did manual reviews depend-
ing on the issue, those things went through fast. And again, there
were 5.1 million loans in 2020, no controls in six months, 6.1 mil-
lion loans in 2021 with controls.
So the thing that I have been looking for, to talk to, and I appre-
ciate this opportunity today, is that speed and certainty can coex-
ist. You can do emergency relief.
And the last thing I will say on behalf of the civil servants at
the SBA, which is really important for them, is that you would be
hard-pressed to find an IG or GAO report ahead of 2020, that has
fraud, waste, and abuse featured prominently in it. There are im-
proper payments, for sure, meaning the lender made a mistake on
the eligibility or some type of rule, but you would be hard-pressed
to find that fraud, waste, and abuse.
So 2020, there were choices made to prioritize speed at all costs,
that in my opinion did not need to be made, and are the outlier
event that has caused the challenges that we all regret. And I say
that completely admiring the prior administration, both Con-
gresses, and everybody that has been involved, because PPP and
COVID EIDL were unbelievable programs to help Main Street
small businesses. But it is absolutely the case that fraud, waste,
and abuse is a huge priority and we will continue to do that.
Thank you for indulging me.
Senator ERNST. Yes. No, and I appreciate that, and I do hope
once the fraud, waste, or abuse has been identified then we go that
next step of either prosecution or recoupment. So again, I will go
back to my opening statements as well. We do know that there was
an error made with Planned Parenthood and the affiliation rules.
But we have not seen any attempt to recoup those dollars.
So it is one thing that we can identify it, but then to actually go
back and correct problem, I think that is really important. Because
whether it is PPP or the EIDL program, the loan program, obvi-
ddrumheller on DSK120RN23PROD with REPORTS
ously there are still those that have applied that would like to see
those dollars in their businesses.
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19
And we can come back to that, certainly. I will have some follow-
on questions, because I do know that you have a Fraud Risk Man-
agement Board, which is good. So I will want to know a little bit
more about that as well.
Thank you very much, Mr. Chair.
Chairman CARDIN. Thank you. Senator Hirono.
Senator HIRONO. Thank you, Mr. Chairman.
Whenever there is a natural disaster, SBA is among the first
agencies to step forward, and certainly Hawaii has had its share
of nationally declared disasters. And I want to thank you and Ad-
ministrator Guzman and all of the men and women who work at
SBA for being there as they have been.
It is clear that the prior administration did not set up adequate
protections against fraud, waste, and abuse, so I get that you are
doing everything you can to ameliorate those deficiencies. The PPP
and EIDL were massive, massive programs, and, in fact, you have
about 4 million loans that are coming due. Did you not request ad-
ditional resources for SBA so that you can process these loans that
are coming due?
Mr. KELLEY. Yes. I believe the 2023 budget makes a request for
the servicing, and what you are referencing is beginning in Octo-
ber, so less than 60 days from now, we will begin to service pay-
ments. As the Committee knows and as you know, Senator, there
were 30 months of deferment. I am pleased to report that a third
of COVID EIDL recipients have already made payments, even dur-
ing the deferment, so that is encouraging.
But yes, we will begin servicing. That number, obviously, as
Chairman Cardin referenced in his opening remarks, is a massive
number, so we will need resources.
Senator HIRONO. Mr. Chairman, I hope that we are going to be
supporting the Administration’s request for additional resource.
Otherwise, you are going to have, I would say, the word ‘‘chaos’’
comes to mind, as SBA does its best with its resources to admin-
ister all these loans.
You have heard a lot about people in our own state, we have all
been getting phone calls, and the issue for me is that there are peo-
ple who applied for these loans who were told that things were
going well. They were following up on all of the requested informa-
tion, et cetera, and then finally to be told by the SBA that the pro-
gram ran out of funds.
And then the next thing they heard was that, no, the issue for
this particular applicant—I am talking about an applicant called
Maikai Health Corporation, which is a nonprofit organization that
takes care of the health care needs—but the thing they hear is that
they were actually in the situation where they had made exagger-
ated projections of 2021 expenses and did not file their 990 tax re-
turn. I do not know what that is.
So they are getting two different pieces of information. So what
are they supposed to do? Because the second one sounds serious.
When you are exaggerating your costs, that sounds like fraud. So
what are they supposed to do, because originally they were not told
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that they were in a situation where they had to deal with what
sounds like fraud.
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Mr. KELLEY. First off, yes, not filing your taxes is fraud, yes. So
it is a criminal offense. And for this particular program, the 2019
return is the return that we are leveraging. Those returns needed
to be file, even with extensions, by the fall of 2020.
And the reason there is a disconnect, I believe—and I work on
this every day, and I just want to say for the Committee, and it
is important just to say personally, I come from a town, Man-
chester, Connecticut, where the median income is $61,000. It is
under the national average. In my community, behind us was a
dentist, across from us was a steak owner, and around the corner
was a franchise owner for Dairy Queen, obviously our favorite.
So I want people to get capital, and as does the Administrator.
But the reason that they cannot get capital, and believe that they
are eligible in the first place, is because they did get capital in
2020, even with those issues. And so it is important to understand
that that original choice, with respect to the tax filings, has a rip-
ple through the process.
Senator HIRONO. Is there any way for this nonprofit agency to
remedy its situation? I mean, exaggerated projection for 2021. That
is probably in dispute. But whether or not they filed a 990, that
is an objective criterion. Is that something they can remedy, so that
assuming they still need these funds and you have funds, that they
can pursue funds?
Mr. KELLEY. Yeah. So first off, obviously, as I have indicated,
this is a credit-not-available-elsewhere program, so we take ex-
traordinary lengths together, and I think it is appropriate for the
public sector to, for example, originate loans with a 570 credit
score, which, of course, in the private sector would be difficult to
get.
On this particular issue, though, on whether or not you filed, and
the fact that the increase request that you were seeking is not sup-
ported by the tax information or the financial information that you
provided, I believe that we need to draw the line there, and I have
recommended to the Administrator that that is what we do.
And I guess the last thing I would say is there is no comparable
process in the private sector for appeal or reconsideration, and I
will say every time that I said yes when I was lending—and I lent
half a billion dollars to Federal Government contractors across the
country, minority, women, veteran-owned—every time I said yes, I
was the greatest banker in the history of the world. And the next
day when I said no, I was the worst banker in the history of the
world.
Senator HIRONO. So with regard to this particular nonprofit then,
the answer is no because they did not file—they either filed a 990
or they did not, and if they did not file it, this disallows their in-
creased request. That is my conclusion. They just need to know one
way or the other, I would say.
Mr. KELLEY. Yeah.
Senator HIRONO. Okay. So that is their situation. Thank you.
I know, Mr. Chairman, that with the millions of loans and every-
thing that happened in the PPP and the EIDL program, there were
people that came out of the woodwork to take advantage of this
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program. And my one last question is who is prosecuting all the
people who were engaged in fraud in these two programs?
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Mr. KELLEY. As you know, and Senator Ernst also referenced
this, the Biden-Harris administration designated a team at DOJ to
focus on fraud, waste, and abuse associated with the CARES Act
programs. And as I understand it, both the House and the Senate
are moving bills along to extend statutory limitations, which obvi-
ously will support their efforts. Because as the license plate shows,
folks do need to be held accountable for where it is appropriate.
Senator HIRONO. Do you have any idea how many people have
already been indicted for these two programs?
Mr. KELLEY. I do not. And I do want to clarify something. I know
this Committee knows, so many reaching across the Committee out
to the C-SPAN public. SBA is not an enforcement agency. So unlike
the SEC, unlike the bank regulatory bodies, we administer pro-
gram certifications for government, and I know everybody knows
this.
So we rely on the Office of the Inspector General primarily, and
then, of course, they work with Secret Service, at Treasury, as well
as DOJ, Department of Justice. So we can assist the IG, and one
of the primary ways to do that is allowing inspector general per-
sonnel, on a daily basis, to have access to any and all data related
to anything across all these programs.
And Administrator Guzman, upon being sworn in, actually pre-
ceding her, when I took my position in March, we restored that.
And so the IG has daily access to anything and everything they
want. And obviously as Senator Ernst referenced, the Adminis-
trator has designated a front-office person to coordinate with those
other bodies on this. She meets every two weeks with the inspector
general, and her directive to us has been, and will continue to be,
to be completely open, completely cooperative.
I want fraudsters put in jail, because the 32 million small busi-
nesses are the people that employ two-thirds of this nation, and
they were my neighbors and my friends and my relatives growing
up.
Senator HIRONO. Thank you. Thank you, Mr. Chairman.
Chairman CARDIN. I will point out that Senator Paul and I have
worked together. The legislation you refer to passed the Senate this
week and is on the way to the President for signature, extending
the statute of limitations. Senator Rosen.
Senator ROSEN. Thank you, Chair Cardin and Ranking Member
Ernst today. And Mr. Kelley, thank you for being here and testi-
fying and the work you are doing.
You know, we are here today because a little over 2 2 years ago
Congress had to respond to a pandemic with the promise—a prom-
ise to our small business owners that we would not let them lose
everything as a result of the global health crisis, completely outside
their control—completely outside their control. We made this prom-
ise through programs like PPP, the Restaurant Revitalization
Fund, and, of course, EIDL.
EIDL has provided relief to over 40,000 Nevada small busi-
nesses. Thank you. We are grateful for that. It was particularly im-
portant for the smallest of business because it allowed them to get
support directly from the SBA without going through a bank. And
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this program’s ability to help struggling small businesses is why I
introduced the bipartisan EIDL For Small Business Act. It is
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22
aimed to eliminate the borrowing caps on EIDL loans, to fulfill our
promise on EIDL advance grants, and replenish the funding for
this program, which I know the Chairman supports. I am proud
that my efforts lobbying these two administrations resulted in rais-
ing EIDL loan cap up to $2 million.
But through all this, small business owners, of course, they face
numerous challenges. Over 90 percent of businesses in Nevada are
small businesses, and so working with SBA on EIDL programs in
the last two administrations, really important.
And after the current administration has corrected many errors
of the previous administration—I applaud you for that—SBA seem-
ingly reneging on its promise by ignoring many of the qualified ap-
plicants who began their EIDL application process prior to the May
6th deadline.
So I think that we have to restore trust. You aim to serve small
business. This is your mission. You come from a small town. You
know all of the business owners there, ice cream, your favorite. I
think that is a favorite for everyone in the heat of the summer, for
sure.
But how do we restore trust between the SBA and small business
owners who feel they have been unfairly boxed out of this process?
And I think that has to do with the communication. Can you speak
to the communication that you need to have between SBA and the
small business owners who applied before May 6th?
Mr. KELLEY. Yes, I can. First, they tell me that it is your birth-
day.
Senator ROSEN. It is.
Mr. KELLEY. So happy birthday.
Senator ROSEN. Thank you.
Mr. KELLEY. I will communicate that first.
Senator ROSEN. Thank you. Ice cream, maybe.
Mr. KELLEY. Yeah. I mean, cherry-dipped at Dairy Queen, pretty
good.
Senator ROSEN. Pretty good.
Mr. KELLEY. What I will say about communication. So there is
no question that for 24 months there were peaks and valleys, or
plusses and minuses with the way that the programs were commu-
nicated. We have talked about structural expectation setting earlier
in the hearing, and you referenced this, which is to say you tell
someone, in 2020, you can show up for something. You do not need
documentation to validate that you filed taxes. We give you
$150,000. We do 3.6 million in four months. And so the expectation
is set, okay, that this must be something that I am able to access
because I went to the Federal Government and they gave it to me.
And then in 2021, when I come back and I am asked to proffer
evidence now of tax verification that goes to the economic injury,
by definition we have now changed the expectations, right? So
So at the basis of communication, in anything, is what expecta-
tions do you set, and if you change those expectations—
Senator ROSEN. Do applicants receive an email, any kind of op-
portunity, communication from you about this?
Mr. KELLEY. Yes. So one of the silver linings to communica-
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tions—I will call this one of the plusses—has been the open rate
of email correspondence with borrowers. In the private sector, if an
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email marketing campaign that I was involved with got, you know,
high single digits, we were very excited, and during PPP it would
climb into the double digits.
At SBA, for COVID EIDL programs, we were getting, in some
cases, each week, 60 percent open rates. So that is really impor-
tant, and we see this evidenced in the correspondence to your of-
fices and our offices, that they are understanding and processing
the requests and the communication.
But I think the other expectation about communication is that in
a loan product situation there is, yes, are you a small business?
That is a foundational principle. But then there is, do you have
reasonable reassurance of repayment? And it is there, in the credit
decision, that differentiates it, for example, from PPP, where we
did not have a credit decision. We had a formula that the lenders
executed, but we did not make a credit score, which was one of the
reasons that you will recall that lenders were concerned, in Phase
1, about lending to business borrowers who were not existing cus-
tomers.
So I think one of the things that we improved, but was too late,
in terms of communication, certainly for a program that had been
open well over a year at that point, in August of 2021, we made
reforms to the RAR RAPID portal to enable the district offices to
have direct access and transparency to see whatever the loan offi-
cer or any other processing employee in the DPC in Dallas-Fort
Worth could see. That was really critical because it helped expedite
casework for your offices, but it empowered them. And one of the
mistakes prior to that was the fact that a person could pinball from
the call center to the district office and back, in an infinite loop,
and that is deeply frustrating, and regrettable.
In September, we switched call center vendors. So the vendor
that had been selected, the contract staff augmentation and call
center system that had been selected in 2020, had no service-level
agreements or KPIs. So what that translates to is, well, what was
the call response time? How quickly did you pick up the phone? We
do not know. How quickly did you disposition it in a favorable out-
come? We do not know. And so, again, choices made at the outset
proved to be really devastating across the span of time.
In addition, the portal itself had a two-step process, which from
a technology standpoint was inept, quite frankly. It required you
to come in, fill out the application form in an intake, and then wait
for a response. And in an emergency situation, as you guys have
told me and I totally agree with, silence is deafening. And so if I
am waiting to be invited back into the portal and I do not know,
I logically start a new application. Well, the system then detected
that you were applying for two instances at the same time, so then,
of course, you are now on the call center line.
So again, there were choices made, in 2020, from a speed stand-
point and a design standpoint, that created systemic issues that
rippled forward, and it leads to this day, because the constituency
interactions that we receive are still trying to make heads or tails
out of all these, you know, disparate signals that we sent them.
And that is horrible, and from Administrator Guzman’s standpoint,
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it is never again. So the Office of Capital Access is now charged
with reforming all of this in the core natural disaster programs.
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24
Senator ROSEN. Thank you very much, and I look forward to see-
ing more streamlined communication and process.
Thank you, Mr. Chairman.
Chairman CARDIN. Senator Hickenlooper.
Senator Hickenlooper. I was so glad to yield to the Senator from
Nevada on her birthday, to make sure she did not have to wait.
Senator ROSEN. Thank you.
Chairman CARDIN. And we all wish you a very happy birthday.
Senator HICKENLOOPER. We try to do our best.
Mr. Kelley, Administration Guzman, I have tremendous respect
for, and I think you are acquitting yourself well today. But what-
ever I am saying, whatever agitation I bring to my questions is not
a reflection on you. Recognize I view you as a solution, not the
problem. But it is hard to look at a system like this where the com-
munication and the system has been so dysfunctional, and not feel
tremendous aggravation.
Senator Risch and I introduced a bill to require the EIDL pro-
gram to meet exact timelines—I am sure you have probably seen
it—to make sure that it is communicating in a timely, effective
manner.
In March, the SBA started work on GAO’s July 2021, rec-
ommendation to develop a comprehensive strategy for commu-
nicating with disaster loan program participants. And obviously,
the resilience in this country is insufficient. These wildfires, these
floods are going to continue.
Is the SBA’s comprehensive communication strategy, does it in-
clude the timelines that Senator Risch and I had in our bill?
Mr. KELLEY. I apologize. I am not able to recall exactly the
timelines, but I will endeavor to state some timelines, and you can
tell me to speed up or, as Senator Cantwell did last spring on RRF.
But with respect to what we are doing in the disaster loans, 83
percent of disaster loans are under $50,000, and they are consumer
and EIDL loans for business but there is property damage on the
consumer side. Those are unsecured loans, and we ought to be, in
the 21st century, able to approve, decision, and disburse within 72
hours or less. And I am sure right now there is somebody online
saying, ‘‘Well, you know, Kelley, I can do it in 24 hours.’’ But 72
hours sending the disbursement ACH list over to Treasury, we can
get to that.
There is, historically, in natural disaster, challenges between the
way the FEMA systems and the SBA systems—they are not as in-
tegrated as they could be. So we are working with FEMA on a
roadmap of application program interface to allow for those sys-
tems to integrate with one another. That is important because we
often talk about a single point of entry so that I do not have to go
to multiple different places. But in the modern technology architec-
ture with API you can have no wrong entry point but maximum
reuse or optimal reuse of data that you have put in.
So from our standpoint I would look to the Restaurant Revital-
ization program as an indicator of how Administrator Guzman in-
tends to reform disaster lending in terms of timeliness. In that par-
ticular program, we had APIs published for private sector tools,
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point-of-sale vendors, Square, and Toast. We enlisted other point-
of-sale vendors for source-of-truth data that went to the economic
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25
injury calculation. And we were able to process 60 percent of those
applications mobile, at the discretion and election of the applicant,
and we were able to process those in less than 20 minutes.
And if you think back to RF, in particular, in terms of the total-
ity of Administrator Guzman’s vision and execution, in comparison
to the shortcomings we are discussing today over the two years,
with respect to COVID EIDL or some of the legacy issues with
PPP, it is quite remarkable and promising, because we did not
have the tax issues that we see.
Senator HICKENLOOPER. No, I agree, and I think that is exactly
correct and one of the reasons I admire her and her work.
Let me ask you another question, just a little bit connected to
that. You mentioned Square and Toast, is there—and this is just
kind of pie in the sky, future—a way that you guys could work
with the fintech. They claim that they now have so much informa-
tion about their customers that they can give a more accurate loan.
They can tell who is credit-worthy, and that they are giving many,
many loans that are turned down by the SBA. Is there some way
to partner with them to kind of use that capacity and the increased
accuracy and get a better performance?
Mr. KELLEY. Yeah. So yes, and that is underway. For example,
under the hood, so to speak, in the back end, for the Restaurant
Revitalization portal, we integrated a fintech provider called Plaid.
Plaid enabled us, at the election and discretion of the borrower, to
integrate, through API, with Plaid, to validate their bank account.
If you wanted to forego that we did a manual review to validate
bank account, again going back to what was not done in COVID
EIDL, where you could switch your bank account, in 2020. So we
were able to offer speed with certainty.
In addition, we integrated the 4506–T process inline, in the ap-
plication workflow, leveraging DocuSign, electronic signature. And
so what people will tell you when they design user experience for
product in financial technology is that you do not want to break the
workflow. You do not want somebody to go out of that experience.
You want them to complete the task on hand.
So those are two examples. But from the standpoint of fraud,
waste, and abuse, we were able to integrate Treasury Do Not Pay,
4506–T, yes. Those are very important public sector criteria. But
we were able to access third-party databases, like LexisNexis pub-
lic records, research Plaid, et cetera.
So there is enormous opportunity in natural disaster, which we
are focused on right now, and into our core programs to do that,
yes.
Senator HICKENLOOPER. Great. Perfect. You made my day.
Thank you. I yield back to the Chair.
Chairman CARDIN. Senator Shaheen.
Senator SHAHEEN. Thank you, Mr. Chairman, and thank you,
Mr. Kelley, for being here and for all of the work that SBA does.
It is my understanding that SBA has argued that no funding re-
mains to continue to approve EIDL loan modifications or previously
denied applications. But in drafting the Bipartisan Infrastructure
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Bill Congress very clearly intended that SBA use transfer authority
granted by that law to reallocate funds from targeted EIDL grant
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26
program to the EIDL loan program so that businesses that were el-
igible for that assistance would be able to receive it.
Now in the past, SBA has used that authority. Why was the deci-
sion made, in this case, not to use that authority again?
Mr. KELLEY. As we have indicated to the Committee we did use
that authority, for example, to process applications that were re-
ceived on or before May 6th cutoff deadline. So we used both can-
cellations, which I think Chairman Cardin referenced, as well as
funds that we moved in coordination with ONB into that fund.
There is no question that communication from center-level per-
sonnel on an individual basis about funding being exhausted was
confusing. However, when we speak to the inventory that we are
talking about today, the 41,000, it there are not any instances that
would be approved in obligated funds. Those files have been looked
at. There has been communication to those borrowers about what
was missing, what was insufficient. And in two-thirds of the cases
it is a tax-related issue.
At this point, we would not move fund because we do not see the
inventory of demand. And again, the reason that is the case is 92
percent of that population has had a loan since 2020, and as of
April of 2021, with the average increase being $200,000, they could
seek a loan increase, and many did. But only 20 percent of those
eligible for an increase ever responded over the course of 15, 16
months, roughly.
So I understand—again, and I want to keep reiterating this—I
understand why they are frustrated with the outcome, but in terms
of the SBA’s responsiveness to their petition for an increase, we
have given them multiple, in some cases, reconsiderations or ap-
peals, and we are not going to be able to get to yes on their indi-
vidual file.
Senator SHAHEEN. I appreciate the effort. I beg to differ on a list
of applications that we have worked with, our district office, on.
And while there are some—I do not want to use the word ‘‘ques-
tions,’’ but there are some disparities, but they are in, you know,
in at least one case, as simple as an email address that was dif-
ferent.
So I guess you have not convinced me. And while I recognize that
there are some cases that, you know, for various reasons, human
error, do not get reviewed in the same way that we would all like,
I am still concerned that we have businesses out there that qualify,
that are not being acknowledged by SBA.
So I do not know how to resolve some of those cases, but I do
think it is a concern, and it is an ongoing concern. And as Senator
Rosen talked about trust, I think that is a real issue that many of
our small businesses still have at this point.
I want to ask you about an issue that is not directly related to
EIDL but it is one that concerns me a great deal because I think
the district offices that SBA has around the country are really im-
portant. I have lived through recession in New Hampshire where
the only thing that kept our small businesses afloat was the SBA
and the work of the district offices, and particularly during the
pandemic they were really important.
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And I am very concerned because I am hearing that there are
some at SBA who would prefer to see a smaller footprint in the dis-
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27
trict offices, who would like to see more power consolidated in
Washington, and that data that we have seen shows that there is
a marked drop in operating budgets for some district offices, in-
cluding in New Hampshire, even as some of the other programs
that help our small businesses are being phased out. To have a fur-
ther reduction in the ability of our district offices to help small
businesses I think does not accomplish the goal that we all share.
So can I ask you if you support the work that is being done by
SBA’s district offices, and will you commit to resist efforts to de-
crease staffing and operating budgets as long as Congress appro-
priates sufficient funding for salaries and expenses overall?
Mr. KELLEY. Well first, yes, I enjoy working with the district of-
fices. I had five years during the Obama administration where I
traveled quite a bit more to those district offices. I understand
their value at the point of sale. And one of the things that we have
done, for example, in Restaurant Revitalization program was we in-
tegrated 100 district office employees directly into the decisioning
process as a response to some of the shortcomings that were identi-
fied, for example, in COVID EIDL previously, at that moment.
In addition, as I mentioned for COVID EIDL, one of the things
that we worked with the field on was getting them access to the
data regarding COVID EIDL files, so that they could assist bor-
rowers directly. So there is absolutely a place for district office
folks to help us success on the mission.
As to the second part of your statement, I think it is yes, and
I think what you are saying is a budget is about prioritizing
choices, and you are suggesting that the SBA would have its fund-
ing to do its full suite of things. And quite obviously, then, the dis-
trict office should be, you know, funded as it needs to be.
Those decisions, obviously, are above my pay grade, but I think
everyone, and certainly Administrator Guzman, to your question,
in her hearing this spring, I think indicated support for the field
offices.
Senator SHAHEEN. Well, she did, and I have had a chance to
raise that with her, yet we do not see a change in terms of the in-
formation that we have been getting with respect to how the money
is being distributed. And the fact is that those district offices are
still being told they have to reduce their operating budgets signifi-
cantly, and I think that is a concern.
Mr. KELLEY. My understanding on this particular issue is that—
so these guys are about to jump out of their seats—I do not under-
stand appropriations. I know there are appropriations, but there is
an Appropriations Committee, and what has been related to the
agency is that these things are going to be sorted out as the proc-
ess moves forward. That is not a very informed answer, but what
I took that to mean, in relation to prioritization, is that there is an
understanding that there is a lot of opportunity, there is a lot of
need across the SBA footprint, given the balance of what we have
to attack.
Senator SHAHEEN. Well, thank you. As an appropriator I am
going to be watching this very carefully, and I do not appreciate
having a budget submitted that is being done with the idea that
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we are going to cut this area because we know Congress is going
to put that back so that we can fund something else. I would hope
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28
that in the budget process we would all be as honest as we can
about what the priorities are and what we should be funding.
Thank you. I appreciate your answers.
Chairman CARDIN. I am going to follow up on some of Senator
Shaheen’s points. I just want to acknowledge that we spent a lot
of time together in developing these programs, with Senator Rubio
and Senator Collins. And we really did want to get money out
quickly, and we recognized that the verification systems would be
lax, because if we had to go through all the verification systems the
businesses would be shuttered and closed for good. So we knew
that there was going to be some challenges in doing this when we
created the program.
I am also going to follow up on some of Senator Shaheen’s points
about individuals that are not—they have followed the rules and
they have not gotten the clarity that you have given us today.
But first let me just point out, on waste, fraud, and abuse, be-
cause I agree. Look, we wanted to get money out quickly. We did
not want to see any waste, fraud, or abuse, but we wanted to get
money out quickly. And when you look at the size of the PPP pro-
gram and the EIDL programs and the restaurant program and the
Shuttered Venue program, the amount of fraud is very, very small.
So let us be clear about that. We want to see it at zero percent,
but the percentages are very, very small.
And under waste, fraud, and abuse, or mistake, a lot of this is
not fraud, as you pointed out, and we should recognize that small
businesses do not have the same degree of capacity that large com-
panies have, and at times mistakes are made. They are not in-
tended, and we have to correct that. But let us not call it fraud
when it is not fraud.
So I just really wanted to clarify those points and also com-
pliment this Administration for having much more transparency.
We have gotten much more information. I note Senator Ernst
might get a little upset about this. It was not a high bar to meet
under the Trump administration because they just did not make
anything available to us. But we do appreciate the fact that it has
been a much more open process under this Administration.
And in regard to Planned Parenthood, I did not know we have
to talk about that again. This is the affiliation rules. Affiliation
rules apply not just to Planned Parenthood but other nonprofits.
We clearly wanted nonprofits to be eligible. We made nonprofits el-
igible. And the affiliation rule is the same for Planned Parenthood
as it is for the Y’s, as it is for Boys and Girls Clubs, et cetera.
There was never a determination made that money should have
been returned.
So let us be clear about that. I know we will hear about it again,
but I just really wanted to clarify that for the record.
Now let me get to the main thrust of today’s hearing. It is clear
that the SBA did send out communications saying that applications
were being denied because of lack of resources, but as you have
clarified today, that is not the case. Correct?
Mr. KELLEY. Yes. In all of those instances, both of those mes-
sages I believe were communicated to the borrower.
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Chairman CARDIN. So now we have 125,000 eligible small busi-
nesses that have been informed that they are entitled to receive ad-
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29
ditional loan money, and your testimony today is it is up to those
applicants to get the documentation in, in order to complete the
settlement of those loans.
Mr. KELLEY. It is up to any borrowers to close a loan. So they
have to sign the note. They have to sign the ancillary documents
to the note. So they are not providing any additional documenta-
tion for any approval or anything. So if you bought a house and you
remember the big closing table and the big stack, that is what they
have got to execute. They just have not done that yet.
Chairman CARDIN. I just really want to emphasize what Senator
Shaheen has said. We will give you chapter and verse—I think we
have already given you these cases. We have several that have
come to my attention where that is not the case. The burden is on
the SBA to complete the closing, not on the person. They have done
that and they are still waiting for their checks.
Mr. KELLEY. There is yet another issue with what you just
opened up. I agree that but for the borrower agreeing to take the
note—so they have to sign to be the borrower—we are responsible
for closing the loans in association with that. So for the 125,000,
including with the district offices, we are executing the closing, and
it is at the discretion of the borrower to execute that.
And yes, we have seen, from your office and others, that there
was confusion for those folks who do have funding—and I want to
reiterate again, their money is there, they can execute the closing,
and we will assist them with that closing.
Once they have executed the documents the money goes on a
schedule over to Treasury for the ACH into the designated bank ac-
count. There are issues with those bank accounts, where the ac-
count is located are bouncing back our disbursements, and I do not
know the exact reasons from each institution. One of the reasons
that is cited most often is the opinion of the bank that commercial
activity for this account is not recognized, and therefore they are
flagging it as suspicious activity.
Chairman CARDIN. I understand exactly what you are saying and
I recognize that, and that is one of the points that I think some
of our colleagues have mentioned. There are better systems out
there that would have dealt with this. And we are dealing with two
agencies, Treasury and SBA, and that is a challenge also.
My plea to you is, provide the leadership and resources to get
these resolved. These are people that are frustrated. They need
their money. In one case it was the bank account only accepted
checks up to a certain amount, and they had a higher check coming
in so they set up a separate account, and it took them forever, and
they still have not completed getting that routing into the system
so the money actually could get there.
Mr. KELLEY. Yes.
Chairman CARDIN. You know, these are small businesses. They
need help. So please resolve these issues. Get the resources and get
it done. And they have been given inconsistent information over
time. At one point they thought the money was not there, and
many of them were giving up.
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So please provide the services they need so we can get that
125,000, those that want to take out the loan, that they can com-
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30
plete the loan process and stop calling our offices. That would be
very helpful. So I appreciate if you would follow up on that.
Mr. KELLEY. I understand. Yes, and I hear you. One hundred
percent we will redouble our efforts. And for all of those bank ac-
count bounce, just like the closing, we will work those to comple-
tion. So we will work with that particular borrower to get that
money. And that money remains theirs, even if it bounced back.
Chairman CARDIN. Now to the 41,000 potentials. We are in-
formed, either directly or through communications generally, that
these loans are unworkable, not that they were denied but that
they were unworkable, as I understand it. And I understand that
a lot of these they could not get the verifications that are required,
they had not filed their tax returns, all those issues that have to
be done for them to be able to get their loans completed. I recognize
that.
But unworkable is not denied. Many of these, according to the
case work notes that we have, they think that they have given ade-
quate information, or that they can supply the adequate informa-
tion, but they have not gotten that ability to do that because of the
way the system is set up.
So I would just urge you, to those that do have claims that can
be adjudicated in a positive way, either reconsideration or in-
creased loan amount or whatever they have filed, let us try to get
those resolved. The numbers are getting small enough that it
seems to me that we should be able to handle those with the type
of service that we would expect from the SBA. So I just urge you
to try to resolve that.
For those that are truly not eligible, you are going to have to bite
the bullet and give them a determination so that they can move on
or file an appeal.
So it would seem to me you have to complete these. I do not want
you to deny an application that has merit because you want to get
it off the books. I am happy to keep it open if there is a possibility
for successful conclusion for the small business owner. But they
need to know. There has to be a time.
Mr. KELLEY. So understood. I understand the urgency. I under-
stand what the objective of the mission is. The one thing that I do
want to make the Chairman aware of, and members, is that from
the point of first disbursement a borrower has 24 months to seek
a loan increase. So as of July, 80 percent of that universe told. It
is August 2nd today, so 80 percent of that universe can no longer
seek a loan increase. By October, that number will be in excess of
90 percent, and by the end of the year it will be zero.
So what is important to understand, too, is that, again, the pro-
gram did formally close, as you guys know, on December 31st, from
taking new applications. So the combination of those things makes
it such that from our perspective we are moving on to servicing, for
which that begins in October. There will be 27,000 folks that are
required to make their first payment, and then it spikes up a half
a million for multiple months thereafter.
That is a huge lift. We are going to have to onboard the staffing
that we briefly scaled back when originations concluded, to come
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back on board. Despite the fact that this Committee and the Appro-
priations Committee made billions of dollars available for COVID
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31
EIDL admin, the COVID EIDL RER RAPID portal does not handle
servicing. And so we have to stand up a servicing solution at scale,
which is a technology lift as well as a people process lift.
So we are facing that in the next 60 days. I understand the frus-
tration that folks feel out there, as a part of that 41,000, but from
the perspective of what I can assure you is that we did work with
these borrowers to find a yes. And it should be mentioned that with
your leadership, in 2021, we did $200 billion of support, and we did
those 400,000 loans checking IP static address, checking business
address, validating tax information.
So we demonstrated that you can do 20 percent of the total ad-
dressable marketplace of all lending in 2021, with 7,000 employees.
We did that together, and yes, there are definitely things that we
would do differently and have learned from, for sure.
Chairman CARDIN. I would just point out that I have been told
the 24-month period is not statutory. You can waive that 24
months if you wanted to.
Mr. KELLEY. Sure. I understand.
Chairman CARDIN. Senator Ernst.
Senator ERNST. Yes, thank you, Chairman, and I appreciate the
discussion today. And I want to make it clear. I do not care what
administration it is, we should always be transparent. I think that
is just the best policy across the board.
And with that transparency, again, I am going to go back to the
Fraud Risk Management Board. I am really excited. I know that
the SBA had announced in April that they were creating this
Fraud Risk Management Board. But again, when it comes to trans-
parency SBA has not really shared any details with Congress or
the public about its impact since it was created.
Can you maybe just visit with us a little bit, give us an overview
of what type of programs the board is looking at. Have there been
results from that? Maybe just share information with us on how
that board is going.
Mr. KELLEY. The primary responsibility of the board today obvi-
ously is to handle what amounts to I think somewhere north of 60
total audit reports across GAO and OIG, in addition to our annual
audit with our auditor, KPMG, that is ordered by the IG.
Within that, obviously, is demonstrating to those auditors, and
first and foremost to ourselves, that we have addressed the short-
comings that were highlighted. You know, I mentioned in PPP not
making a core accounting system reconcile in real time loan re-
quests, which is not done on Planet Earth, so we can avoid 50,000
duplicates.
There are issues with improper payments that had been
conflated to fraud, which, as you guys have addressed, small busi-
nesses are not necessarily committing fraud. For example, in the
COVID EIDL program, the $80 billion number that is often ref-
erenced is in large part due to sole proprietors who, in 2020, were
required to demonstrate, for each $1,000 they were seeking, up to
$10,000 for the targeted EIDL advance that was originally made
available, they needed to demonstrate they had an employee. In
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order to have employees as a sole proprietor you have to have a
registered EIN.
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32
There are a great many sole proprietors that I have no doubt be-
lieving have employees, were certified correctly that they deserved
$5,000 or $6,000, or whatever, but they did not have a registered
EIN on or before, I believe, the date is February 15, 2020, when
the pandemic was officially start date.
So the Fraud Review Board is focused on addressing the most
immediate issues. From a standpoint of how we do that, we have
to recognize—and Administrator Guzman has I think shared with
you and others—we have to recognize that we have to be timely.
We have to be fast. We have to be relevant. And so that means
making technology choices that contemplate both that speed and
certainty. So putting tools in the front end before you disburse the
money, to know your customer, those types of things.
So across the board it has begun and is a daily event. There is
not a day since I became the Associate Administrator on March 1,
2021, literally, that I have not spent at least, minimally, a third,
and there were some long days, focused on fraud, waste, and abuse.
So it is top of mind.
Senator ERNST. That is good. Now with all of the lessons that we
have taken away, that came out of COVID–19, and some that have
been identified by the Chairman and others through their lines of
questioning today, I am so hopeful that we never, ever experience
another COVID–19 type event in our history, but it could happen.
So taking all of these lessons learned, are we able to act on those
in the future, have those suggestions, those solutions been identi-
fied, and how can we put those into practice as we move forward?
Mr. KELLEY. Yeah. I too share the sentiment that I am good for
pandemics. I hope I do not have to have another one.
I want to take a second to commend the Office of Capital Access,
SES civil servants, because they were prescient. They took the re-
sources, the admin dollars that this Committee and the appropri-
ators made available for CARES Act programs across PPP, et
cetera, and that technology, specifically for fraud, waste, and
abuse, as well as call center support—we have talked about com-
munication—we were able to build, successively, off of the initial
portal that was launched August 10, 2020, to support, ostensibly in
the beginning, PPP forgiveness.
From the private sector, watching that launch August 10, 2020,
I was struck, as many were in the private sector, this works. This
is good. And Steve Kucharski and his team in the Office of Capital
Access deserve a heck of a lot of credit, because it was that invest-
ment, again with the PPP dollars, that led to a better experience
for all applicants in the Restaurant Revitalization, put the agency
in a position to facilitate 1,500 really small banks with forgiveness
in processing 2 million loans, and it is that foundation that is going
right into the natural disaster platform to address the fraud issues
that the IG highlighted, the call center issues, and some of the
challenges that we see in the individual case files today.
Senator ERNST. Good. No, I do hope that we continue to build
upon that. And just in closing too, I do want to say a well-deserved
thank you to all of the folks at SBA, who really had a huge, press-
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ing job ahead of them when COVID–19 hit, and they performed ad-
mirably, as did, I know, a number of our own local banks and cred-
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33
it unions that really helped push those dollars out to those small
businesses that really did need that assistance.
So thank you, Mr. Kelley, for coming in front of the Committee
today, and thank you, Mr. Chairman.
Chairman CARDIN. Thank you, Senator Ernst. One more clari-
fication I need to get on the record so I understand. May 6th was
the cutoff date for modifications, et cetera. It could have gone up
to July, if I understand correctly, and you could have waived that
date and made it later than that. And you put on your website May
6th as the date, quote, ‘‘due to lack of available funding.’’ We will
not argue that when the judgment was made you were projecting
how much money would be available, et cetera. You made that
judgment.
But on the website today it still says as of May 6, 2022, SBA is
no longer processing COVID–19 EIDL loan increase requests or re-
quests for reconsideration of previously declined loan applications,
due to the lack of available funding.
I would suggest that you may want to modify that, just take off
that clause. You are not accepting them, fine. We recognize you
have used that date. We may disagree with that. We can have that
debate. But clearly funding is available now, and it is misleading
to keep that on your website.
The second point I would raise, you indicated during your ques-
tioning here that most of the 41,000 will not be able to get to yes,
and that there is a concern that the funding could be repurposed.
We want to make sure that funding is not a reason for determina-
tion as pending as of May 6th.
Mr. KELLEY. Yeah, I apologize if I left that impression. I either
misspoke or was not aware. I am keenly aware that that is an ap-
propriations decision. It is a decision for OMB. My position, and I
want to make this clear, is that these files were looked at, and I
have seen them personally, I have been involved in the day-to-day
correspondence, and that we have been responsive. And so I apolo-
gize for the confusion I may have left you.
Chairman CARDIN. So no one will be denied who had their appli-
cations in prior to May 6th because of lack of funding.
Mr. KELLEY. Correct. The denials, the decisions, beginning with
their initial denial, for most of these instances, beginning way back
in 2021, and at the heart of the denials is a disagreement between
that particular person about whether or not filing taxes is appro-
priate or not. And I understand the frustration here and I under-
stand why that person—because again, they got the loan originally
with no taxes; they did not file and they got a loan from the Fed-
eral Government in 2020.
I understand why when they speak to people, including me, I re-
ceive emails where, when I read the initial email they acknowledge
the back-and-forth with their particular loan officer, they acknowl-
edge that there were some shortcomings at first. Then they say a
wrong has been done to them. And I came back to serve to say yes,
so that appeals to me, as I am sure it does you and all the mem-
bers. We are here to serve. And so we then take action and we
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Chairman CARDIN. I just want to make it clear that any of the
pending applications, if they are meritorious, they will be funded.
The money is there, that the funds are there.
We will save for another debate, at another time, whether you
had to use that May 6th date because of lack of funding. I, quite
frankly, do not agree with that. I think you could have gone beyond
May 6th if the funding was available, and that you have the discre-
tion to even go beyond July of this year if you wanted to, under
the authority, to waive the 24 months.
We will leave that for another debate for another time, but it is
clear that Congress intended EIDL to have adequate funds to deal
with the COVID pandemic, and we were prepared to make funds
available. It seems like a lot of the funds that we specifically made
available for specific purposes have been taken for other purposes,
not necessarily on the EIDL program but on other programs, and
we could have repurposed money to be able to take care of all the
needs that are out there.
I want to make sure we take care of the 41,000 and the 125,000,
but it seems to me we could have had a longer offramp on this on
the applications for increased funds.
Senator Ernst, anything further?
Senator ERNST. I am good. Thank you.
Chairman CARDIN. We very much appreciate your time and your
explanations and your service to our country. You have a very chal-
lenging job, so thank you very much, and thank you for appearing
before the Committee.
The Committee record will remain open, I believe, for two weeks,
which is our normal process, for friendly questions that may be
asked to you for the record. We appreciate if you would answer
those questions as quickly as possible.
And with that the Committee will stand adjourned. Thank you.
[Whereupon, at 11:43 a.m., the Committee was adjourned.]
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File and source
- File
- chrg_chrg-117shrg50573_chrg-117shrg50573.pdf
- Size
- 5,862,949 bytes
- SHA-256
- 4d73cbdd271a24d82fd636fd6c619d8100f4cd0c7c12302782a3b29e05105e70
- Original
- www.govinfo.gov