Hearing from Lenders: Managing Risk for the Long-Term in the 7(a) Loan Program (Senate Small Business Committee hearing, February 26, 2025)
Summary
Printed transcript of a Senate Small Business and Entrepreneurship Committee hearing on February 26, 2025, published as S. Hrg. 119-19, on how lenders manage risk in the SBA 7(a) loan program. Chair Joni Ernst presided, with Edward J. Markey as ranking member. The witnesses were Timothy Fitzgibbon of First National Bank in West Des Moines, Raymond Lanza-Weil of Common Capital, Itzel Sims of First Security Bank and Mayrena Guerrero of Colorful Resilience. Inserts include letters from Ernst and Representative Roger Williams dated April 24, 2024 and from Ernst dated January 21, 2025, plus letters from America's Credit Unions and the National Association of Government Guaranteed Lenders. The hearing adjourned at 3:51 p.m.
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“Hearing from Lenders: Managing Risk for the Long-Term in the 7(a) Loan Program (Senate Small Business Committee hearing, February 26, 2025).”
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S. Hrg. 119–19
HEARING FROM LENDERS:
MANAGING RISK FOR THE LONG-TERM
IN THE 7(a) LOAN PROGRAM
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
FEBRUARY 26, 2025
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
59–473 WASHINGTON : 2025
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED NINETEENTH CONGRESS
JONI ERNST, Iowa, Chair
EDWARD J. MARKEY, Massachusetts, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana CHRISTOPHER A. COONS, Delaware
JOSH HAWLEY, Missouri MAZIE K. HIRONO, Hawaii
TED BUDD, North Carolina JACKY ROSEN, Nevada
JOHN R. CURTIS, Utah JOHN W. HICKENLOOPER, Colorado
JAMES C. JUSTICE, West Virginia ADAM B. SCHIFF, California
JON HUSTED, Ohio
MEREDITH WEST, Republican Staff Director
SEAN MOORE, Democratic Staff Director
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CONTENTS
WITNESSES
Page
Mr. Timothy Fitzgibbon, Senior Vice President, First National Bank, West
Des Moines, IA ..................................................................................................... 15
Prepared statement .......................................................................................... 17
Mr. Raymond Lanza-Weil, President, Common Capital, Springfield, MA .......... 19
Prepared statement .......................................................................................... 21
Ms. Itzel Sims, SBA Director and Senior Vice President, First Security Bank,
Little Rock, AR ..................................................................................................... 26
Prepared statement .......................................................................................... 28
Ms. Mayrena Guerrero, Founder and CEO, Colorful Resilience, West Spring-
field, MA ............................................................................................................... 36
Prepared statement .......................................................................................... 39
COMMITTEE INSERTS
Ernst, Senator Joni & Williams, Roger, U.S. Representative
Letter dated April 24, 2024 ............................................................................. 2
Ernst, Senator Joni
Letter dated January 21, 2025 ........................................................................ 6
ADDITIONAL STATEMENTS FOR THE RECORD
America’s Credit Unions
Letter dated February 26, 2025 ...................................................................... 56
Ernst, Senator Joni
Statement .......................................................................................................... 59
National Association of Government Guaranteed Lenders
Letter dated February 26, 2025 ...................................................................... 60
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HEARING FROM LENDERS:
MANAGING RISK FOR THE LONG-TERM
IN THE 7(a) LOAN PROGRAM
WEDNESDAY, FEBRUARY 26, 2025
UNITED STATES SENATE,
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP,
Washington, DC.
The committee met, pursuant to notice, at 2:30 p.m., in Room
428A, Russell Senate Office Building, Hon. Joni Ernst, chairwoman
of the committee, presiding.
Present: Senators Ernst [presiding], Hawley, Justice, Husted,
Markey, Shaheen, Booker, Hirono, Rosen, and Hickenlooper.
OPENING STATEMENT OF SENATOR ERNST
The CHAIR. I call the Committee on Small Business and Entre-
preneurship to order. Nearly two years ago, we met to discuss the
reckless new rules the Small Business administration implemented
for the 7(a) loan program. They removed time-tested underwriting
standards that mitigated the risk of default for American taxpayers
who guarantee these loans.
These new rules also opened the door to foreseeable fraud by en-
abling a potentially unlimited number of unregulated, non-deposi-
tory institutions to become permanently licensed SBA lenders, as
small business lending companies, or SBLCs. The last administra-
tion’s 7(a) rules were the most drastic changes to the program in
decades, which is why members on a bipartisan basis voiced their
concerns. Unfortunately, those concerns fell on deaf ears.
I aggressively sought to understand how the SBA was selecting
and approving these new SBLCs to participate in 7(a). The types
of lenders the SBA was looking to license, fintechs, were respon-
sible for facilitating widespread financial fraud and improper pay-
ments in the Paycheck Protection Program. I ask unanimous con-
sent to enter into the record an April 24th, 2024, letter that I sent
with House Small Business Committee Chairman Williams, to the
SBA requesting information on the SBLC selection process.
Without objection, so ordered.
[The information referred to follows:]
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The CHAIR. Two years later, we still have little insight. Even the
recent SBA Inspector General’s report on the subject was woefully
inadequate. The IG report stated the SBA followed its own proce-
dures, but they failed to evaluate whether those procedures were
adequate. The IG didn’t bother to investigate whether there was
collusion between SBA officials and one of the largest applicants
for a lending license, Funding Circle U.S., nor did the report an-
swer why the SBA and the IG concluded the cash position of Fund-
ing Circle U.S. was sufficient despite the fact that it was losing
millions.
The Biden SBA’s dangerous loosening of the underwriting and
eligibility rules weren’t the only efforts to undermine the financial
soundness of the 7(a) loan program.
A year before the rule, the agency started to cut the fees charged
to borrowers and lenders—fees meant to protect the taxpayer from
having to subsidize bad loans. For three years straight, the SBA
cut these fees, inexplicably allowing loans of up to $1 million to be
made without the borrower or lender having to pay for the guaran-
tees the American taxpayer provided.
As I said in a letter to President Trump on January 21st, the
looming 7(a) fee increases are entirely due to the previous adminis-
tration’s incompetent management of the program, which has
harmed taxpayers and the small businesses saddled with debt they
can’t manage, while irresponsible lenders get paid no matter what.
I ask unanimous consent to enter this letter into the record.
Without objection, so ordered.
[The information referred to follows:]
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The CHAIR. We are seeing the impacts of these rule changes with
the 12-month default rate more than doubling to roughly 3.2 per-
cent since these rules went into effect, and defaults on loans less
than 18 months old nearly tripling to almost one and a half percent
over that same period. While the Biden Harris SBA tried to blame
this on rising interest rates, defaults on SBA loans have been in-
creasing faster than those in the private sector, which is evidence
of poor policy decisions.
It should come as no surprise that for the first time in 12 years
. . . [emphasis] 12 years, the 7(a) program lost money. This nega-
tive cash flow must be immediately addressed by reversing the
misguided decisions of the past administration. This program was
designed to operate with zero subsidy and I worry we are on the
cusp of forcing taxpayers to foot the bill, something we should
avoid at all costs.
I want to commend Administrator Loeffler for her recognition of
these problems in her day one memo released this week, and her
willingness to hit the ground running. It is clear that the solvency
of the SBA’s lending programs is a major priority for the Adminis-
trator, who is committed to doing what’s necessary to ensure their
zero-subsidy status is secure.
Today’s hearing provides an opportunity for us to speak with
SBA participants to understand their concerns about the 7(a) pro-
gram’s financial stability. It also allows the committee to gather
concrete suggestions on ways to reduce the risk faced by taxpayers
while ensuring the program continues to be a resource for entre-
preneurs who need assistance accessing capital.
I’d like to thank our witnesses for being here today, and I look
forward to your testimony. I now recognize Ranking Member Mar-
key for his opening statement.
STATEMENT OF SENATOR MARKEY
Senator MARKEY. Thank you, Madam Chair, very much and
thank you for hosting this hearing to discuss the government’s role
in connecting entrepreneurs with the funding which they need. Ac-
cess to capital is always a top concern for small business owners.
For 70 years, the small business administration’s flagship lend-
ing program, the 7(a) program, has provided government-backed
loans to small business owners who are not eligible for a conven-
tional loan. Without government backing, traditional banks would
only lend to the biggest, safest businesses in town while deeming
loans to the smallest as too risky.
Innovative ideas that benefit communities across the United
States would never have come to realization. Ideas that start in a
garage would be thrown away before they can ever get off the
ground. This is especially true for underserved communities, entre-
preneurs of color, and women who have an even harder time his-
torically getting funding as a result of historic discrimination. It
wasn’t until 1974 that a woman was able to get a loan at a bank
without a male relative signature.
Unfortunately, as we all know, discrimination still exists today.
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Black owned businesses are more likely to be denied loans or re-
ceived less money than other borrowers.
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In fact, according to the Fed’s small business credit survey, in
2023, only 32 percent of black small business owners with employ-
ees received the funding they applied for, compared to 54 percent
of white small business owners. This is why SBA’s lending pro-
grams are so critical. They fill gaps. They level the playing field.
In particular SBA’s program, the Community Advantage program
which is a subset of 7(a), utilizes community centered nonprofit
and mission-based lenders.
The program makes small dollar loans with a focus on reaching
underserved small business owners. While the program does not
define underserved by race, gender metrics, it reaches certain pop-
ulations better than the traditional 7(a) program. For example, in
fiscal year 2024, the Community Advantage program made 53 per-
cent of its loans to startups, and 43 percent to entrepreneurs of
color. The traditional 7(a) program in comparison made only 32
percent of its loans to both groups.
SBA has a responsibility to address the inefficiencies in private
lending to support true competition. It is the government’s respon-
sibility to make sure that there is capital for all entrepreneurs re-
gardless of their background. The Biden administration understood
this. They doubled the amount of small dollar loans, maintained a
healthy 7(a) loan program, and ensured a 99 percent repayment
rate, a 99 percent repayment rate.
My witness here today from Massachusetts, Ms. Guerrero, is a
clear example of an entrepreneur who just wanted to serve her
community, but struggled to get the funding to do so. She was un-
able to receive funding from her community bank, who is also an
SBA lender, and she did not have generational wealth to rely upon.
That’s where Common Capital, a Massachusetts-based lender
and SBA’s Community Advantage program stepped in. So, thank
you Ms. Guerrero for taking the time to share your experience with
the committee. Your story is just one example of why SBA pro-
grams like the Community Advantage program is so important.
And I look forward to hearing from our witnesses about their expe-
riences with SBA’s lending programs.
And I also want to acknowledge the committee’s efforts last Con-
gress to codify the Community Advantage program. And I’m hoping
that we can work together, Madam Chair, on a bipartisan basis,
not only to maintain the integrity of SBA lending programs, but
also to ensure that they serve small business owners from all back-
grounds across our country. Thank you, Madam Chair.
The CHAIR. Thank you very much, Ranking Member Markey.
And now I want to extend a warm welcome to all of our witnesses.
Thank you for joining us today. I want to introduce the two wit-
nesses who are testifying today on behalf of the majority. I am
thankful that these two accomplished community bankers made
the trip to Washington DC, to share their expertise and insight
into the SBA’s 7(a) loan program with this committee.
And so, we’ll start with my Iowan first, and thank you. It’s Mr.
Timothy Fitzgibbon, who is the Senior Vice President at First Na-
tional Bank from West Des Moines, Iowa. Mr. Fitzgibbon started
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and built the SBA lending business at First National Bank, where
he has worked since 2017. Previously, Mr. Fitzgibbon was the sen-
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ior vice president at the National Council of Higher Education Re-
sources for 12 years.
And prior to that, he was the director of the Guaranteed Student
Loan Program at the Iowa College Student Aid Commission for
more than 14 years. Mr. Fitzgibbon holds a bachelor’s degree from
the best university, Iowa State University.
And next is Ms. Itzel Sims, and she is the director of SBA lend-
ing at First Security Bank, headquartered in Searcy, Arkansas. Ms.
Sims has a 24-year background in SBA lending and previously
worked at Simmons Bank and Regions Bank. Ms. Sims obtained a
Bachelor of Business Administration from the University of Texas
at Dallas. Thank you, again. And I now recognize Ranking Member
Markey to introduce his witnesses.
Senator MARKEY. Thank you, Madam Chair. And I’m pleased to
introduce our two witnesses who have a business relationship and
can explain how it works for all small businesses. And I would like
to add, though, I’m kind of shocked that Mr. Fitzgibbon did not go
to the finest Jesuit College in Iowa, Loras. [Laughter.]
Senator MARKEY. I think that Fitzgibbon, somehow, I don’t know
how much they welcomed you home when you didn’t go to the Jes-
uit school. Mr. Raymond Lanza-Weil is the president of Common
Capital, which is a nonprofit community development financial in-
stitution located in Springfield, Massachusetts. Common Capital
provides SBA micro loans and community advantage loans, as well
as technical assistance to small businesses in Western Massachu-
setts.
Mr. Lanza-Weil’s work provides entrepreneurs from underserved
communities with financing to start and grow their business ven-
tures. His team works with borrowers in a holistic manner to en-
sure the success of these small businesses.
Ms. Mayrena Guerrero is a mental health counselor, and the
owner and founder of Colorful Resilience, a business that provides
mental health services to all, but especially to people of color, the
LGBTQ community, and immigrants. She has operated Colorful
Resilience for three years. And as a result of her entrepreneurial
spirit the community advantage loan, she now runs a thriving
small business with 15 employees, and has provided vital mental
health services to over 3,000 clients.
So, it’s a perfect example in Springfield of these two institutions
being able to work together to make sure that we have a thriving
small business. I thank you Madam Chair for welcoming these wit-
nesses.
The CHAIR. Yes. Again, thank you to all of our witnesses for
being here and thank you Ranking Member Markey. Briefly, I’d
like to take a moment to explain our lighting system there in front
of you, the little boxes. There are three lights in front of you. Green
means go. Yellow means you’re running out of time, and red means
to go ahead and quickly wrap up your remarks.
I ask unanimous consent that the witness’s full statements be in-
cluded in the record. Without objection, so ordered. As your written
testimony has been made part of the record, the committee asks
that you limit your oral remarks to five minutes. And with that,
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Mr. Fitzgibbon, you are recognized now for five minutes for your
testimony.
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STATEMENT OF MR. TIMOTHY FITZGIBBON, SENIOR VICE
PRESIDENT, FIRST NATIONAL BANK, WEST DES MOINES, IOWA
Mr. FITZGIBBON. Chair Ernst, Ranking Member Markey and dis-
tinguished members of the committee, thank you for the oppor-
tunity to appear before you today to discuss managing risk in the
SBA 7(a) loan program.
My name is Tim Fitzgibbon, I’m a senior vice-president with
First National Bank, a $1.1 billion community bank based in Ames,
Iowa, and founded in 1903. I’m testifying today on behalf of the
Iowa Bankers Association and First National Bank. My responsibil-
ities include managing two specialty loan programs-SBA and stu-
dent loan refinance, and I’m also a licensed investment advisor.
I’m here today to share my viewpoint, not just as an SBA lender,
but also a 40-year participant in government backed loan pro-
grams, including home mortgages and student loans where I’ve
spent a good part of my career, helping borrowers manage their
debt, improve their credit, and avoid default.
Risk in any loan program is primarily managed through sound
underwriting policies. Prudent underwriting ensures equitable
treatment for all applicants and is intended to be a good predictor
of a borrower’s future success. In short, good underwriting protects
the consumer along with the lender, and in the case of the govern-
ment backed SBA program, the taxpayer as well.
In 2023, new rules were written for the SBA program with the
admirable goals of streamlining the application process and in-
creasing access to funding for small business owners, particularly
those in underserved communities. Major underwriting changes in-
cluded removing the applicant’s personal financial resources from
the ‘‘credit elsewhere’’ test, waiving equity injections, reducing in-
surance requirements, and permitting lenders to ‘‘do as you do’’ in
underwriting SBA loans.
Reducing underwriting criteria to increase loan access is not a
new idea in federally backed loan programs, but it has not always
proved wise. A similar approach was used in the 1990s to increase
home ownership through lowered credit standards for private mar-
ket and FHA loans, which contributed significantly to the subprime
mortgage crisis of 2008.
A more recent example continues today with the Federal Parent
PLUS Student Loan Program. Already low underwriting standards
were further diluted in the early 2010s, to allow more families to
access the Parent PLUS program, which has resulted in countless
older Americans becoming buried in debt they cannot afford. Origi-
nating government-backed loans for borrowers who can never repay
them is predatory in nature. It is imperative that the SBA closely
monitor the impact of its reduced underwriting standards on the
borrowers it serves.
To that end, early indicators suggests that there are already
signs of credit stress for SBA loans made under the new rules. For
example, according to a recent risk assessment by the SBA, ‘‘The
Small Business Administration’s Flagship 7(a) program lost hun-
dreds of millions of dollars in 2024 as agency fee reductions com-
bined with an increase in loan defaults to result in negative cash
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flow’’. Similar analysis done by third party service providers, show
loans made under the new rules are defaulting at a much faster
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and higher rate than loans made in other years, particularly those
originated by non-bank lenders.
I’d like to end my statement with a cautionary observation based
on testimony provided just last year by Administrator Guzman in
hearings before this committee, where she suggested the SBA
should restart its direct government lending program. I urge com-
mittee members to study the current condition of the Federal Di-
rect student loan program before considering such a move.
History has shown that direct government lending can lead to ex-
pensive loan modifications and even debt forgiveness to mask non-
performing loans. Loan forgiveness does not manage debt, it simply
passes the cost onto the taxpayer.
Iowa banks are committed to providing access to SBA financing
to our small business communities. While we applaud efforts to
streamline SBA loan processing and expand in a safe and sensible
manner, the number of small businesses the SBA program can as-
sist, we urge Congress and the small business administration to re-
store prudent underwriting standards and ensure proper oversight
for all of its lending partners.
I look forward to your questions, and I thank you again for the
honor of participating in this hearing. And Senator Markey, I’m
proud to tell you that my daughter’s a Loras graduate. [Laughter.]
[The prepared statement of Mr. Fitzgibbon follows.]
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CHAIR. Thank you, Mr. Fitzgibbon. Now we will recognize Mr.
Lanza-Weil, and you are recognized, sir, for five minutes of your
testimony.
STATEMENT OF MR. RAYMOND LANZA–WEIL, PRESIDENT,
COMMON CAPITAL, SPRINGFIELD, MASSACHUSETTS
Mr. LANZA-WEIL. Thank you and good afternoon, Chair Ernst,
Ranking Member Markey, and distinguished members of the com-
mittee. I appreciate the opportunity to speak with you today.
I am Raymond Lanza-Weil, recovering banker and president of
Common Capital, a 35-year-old nonprofit CDFI loan fund based in
Springfield, Massachusetts. Common Capital makes loans to small
businesses that can’t get the financing they need from conventional
lenders, such as banks and credit unions. We make loans up to
$300,000 and we provide no-cost business education, and training
to our borrowers; Our business assistance program is primarily
funded by annual grants from the SBAs microloan program.
Common Capital serves a four-county region with 820,000 resi-
dents. Our annual operating budget is just shy of $2 million. Even
though we’re a small organization serving only a fraction of the
state’s geography and population, Common capital is the leading
SBA Microlender and SBA Community Advantage lender in the
Commonwealth of Massachusetts.
Since our founding in 1990, we’ve made over 900 loans totaling
more than $35 million to small businesses in western Massachu-
setts. All sorts of loans, not just SBA loans, loans that have helped
create or retain 2200 jobs. At the end of 2024, Common Capital’s
loan portfolio totaled $9.4 million, a little smaller than First Na-
tional Bank’s. 54 percent of our loan receivable were SBA Micro
Loans or Community Advantage Loans. And by itself, the CA
loans, the Community Advantage Loans, make up 34 percent of our
portfolio.
Common Capital’s lending is high impact and that includes our
CA loans. 87 percent of our CA portfolio dollars is loaned to busi-
nesses owned by people with low to moderate income or located in
LMI census tracts. 73 percent is loan to startup businesses, 47 per-
cent to woman owned businesses and 17 percent to veteran owned
businesses.
Common Capital was one of the original Community Advantage
lenders. Since making our first CA loan in 2012, we’ve made 41 CA
loans totaling $5.3 million with only one loss. The Community Ad-
vantage program helps us fulfill our mission of creating economic
opportunities for people with low to moderate income by increasing
access to capital for the small businesses they own.
For example, here’s a story about one of CA loans. Alan had
worked in construction in rural western Massachusetts for over 35
years, when in 2018, he had an entrepreneurial seizure and de-
cided to open his own timber frame construction business. After
three successful years, significant supply chain issues and higher
prices on construction materials resulted in losses on a large fixed
price contract. But demand for Alan’s craftsmanship continued to
grow, so the business sought financing for new equipment and
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working capital from their bank, which was unable to help them
due to their recent losses, Alan turned to Common Capital.
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The path to Yes, was challenging because the business’ assets
available as collateral were well short of our underwriting require-
ments. Common Capital was able to offset the shortfall with an 85
percent Community Advantage guarantee. And today, this rural
business has retained its six employees, hired new ones, and is
thriving.
As you know, and as this story illustrates, regulated, financial
institutions can’t help every business that applies for a loan and
nor should they. Banks necessarily say ‘‘no’’ to some applicants in
order to protect their depositors and shareholders and to contribute
to the safety and soundness of our financial system.
Yet, banks and credit unions are our primary source of referrals.
We don’t compete with banks; we support and augment their cus-
tomer relationships. Referring banks keep their customers as de-
positors and continue to provide other banking services to these
businesses. When we provide a loan to a bank’s customer, it’s a
win-win-win.
Before I conclude, I want to tell you another story. Celeste and
Jessica had a combined 30 years of experience working as nurses
in and around Springfield when in 2021 they recognized the grow-
ing need for home healthcare in their urban communities. They re-
sponded by starting their own home healthcare agency. Celeste and
Jessica could not obtain financing from a bank due to being a start-
up and a lack of sufficient collateral.
Once again, common capital turned to the SBAs Community Ad-
vantage Program to overcome these challenges and help two entre-
preneurs start a business that is providing essential healthcare
services and creating jobs.
Senators, as I wrap up, I want to tell you that too many small
businesses and business owners that hear ‘‘no’’ from a bank suc-
cessfully search online for easy money. It’s available, it’s expensive,
and it’s harmful to our business community. To combat this, CDFIs
like Common Capital and other community loan funds try to fill
the gap. With our help, these small unbankable businesses are cre-
ating jobs, generating economic activity, and paying taxes.
These small businesses continue to be bank customers and if
they do well enough, they’ll become bank borrowers as well. We ac-
complish this work with support of the SBA. Our continued success
and the success of the small business community in western Mas-
sachusetts depends upon the availability of SBA microloans and
the CA program.
I urge you to continue supporting the Community Advantage
Program, to expand it so that more mission-focused lenders like
Common Capital can increase access to capital, for low to moderate
income and low wealth entrepreneurs. Thank you.
[The prepared statement of Mr. Lanza-Weil follows.]
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The CHAIR. Thank you, Mr. Lanza-Weil, and we will move next
to Ms. Sims. And you are now recognized for five minutes of testi-
mony.
STATEMENT OF MS. ITZEL SIMS, SBA DIRECTOR, AND SENIOR
VICE PRESIDENT, FIRST SECURITY BANK, LITTLE ROCK, AR
Ms. SIMS. Chair Ernst, Ranking Member Markey, and members
of the committee. Thank you for the opportunity to testify at to-
day’s hearing. My name is Itzel Sims, and I am the director of SBA
lending for First Security Bank, which is headquartered in Searcy,
Arkansas. I’m testifying today on behalf of American Bankers Asso-
ciation, Arkansas Bankers Association, and First Security Bank.
Small businesses are the backbone of American economy. The
SBA 7(a) program helps small businesses that might not otherwise
have access to capital obtain loans so they can grow and create
jobs. In my 26th year of making loans to small businesses, I’m very
proud of the work we do at First Security Bank, to assist busi-
nesses across Arkansas with 7(a) and other small business loans.
First Security is a privately held community bank with a 1.5 billion
in total capital, 8.13 billion in assets and 1,000 employees through-
out Arkansas.
After holding several SBA lending positions, I joined First Secu-
rity Bank and started an SBA lending platform for 7(a), 504, and
express loans. First Security is right now topped at top 10 SBA
lender in Arkansas. This is in a very important time for 7(a) pro-
gram. Two years ago, SBA lifted the moratorium on the number of
non-bank lenders that could participate in the 7(a) program while
simultaneously loosening underwriting standards for these loans.
It has experienced increased defaults since those changes, par-
ticularly in loans originated by non-bank lenders. This committee
can play an important role in strengthening the program so that
all lenders make 7(a) loans in a safe and sound manner, that helps
small business gain access to capital.
Here are recommendations for improving the program: in 2023,
SBA lifted the moratorium on the number of non-banks that can
participate in the 7(a) program, granting six new non-banks to par-
ticipate in the program. At the same time, the agency also loosened
underwriting standards for loans of $500,000 or less. This has con-
tributed to rise of default rates.
Data compiled by Lumos Technologies show that 7(a) loans origi-
nated by non-bank lenders in 2023 had a default rate of 8.1 percent
in 2024, which is more than double the default rate of 7(a) loans
originated by banks in 2023. SBA should return to the more robust
criteria for underwriting 7(a) loans that had been in place prior to
2023.
Moreover, the agency should focus on increasing the number of
banks that participate in the 7(a) program instead of new non-bank
entrants. SBA should also reinstate the loan authorization as a re-
quired document for 7(a) loans. It should also reinstate the require-
ment that 7(a) small business owners provide a 10 percent equity
injection when a borrower is a startup, or when the borrower was
purchasing an existing business.
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To increase efficiency, SBA should reinstate the franchise direc-
tory, a valuable resource that assisted lenders with determining
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27
the eligibility of a franchise for a 7(a) loan before it was discon-
tinued in 2023. Although the focus today is on strengthening the
7(a) program, the small business lending landscape continues to be
threatened by the CFPBs implementation of Section 1071 of Dodd-
Frank. Section 1071 requires financial institutions to collect and re-
port detailed data on each application for small business credit, in-
cluding the race, sex, and ethnicity of the business owners.
The CFPB Rule expanded the 13 data points required by Con-
gress to 81 data points for each applicant for credit. This will sig-
nificantly increase the cost of credit, decrease the availability of
credit, and make it harder for us to serve small business cus-
tomers. Congress should repeal section 1071.
In conclusion, we strongly support the committee’s goal of
strengthening the 7(a) program and facilitating small business
lending more broadly. We urge Congress to ensure that the SBA
reinstates previous underwriting standards on 7(a) loans, not grant
additional non-bank licenses without a demonstrated need and
proof that the agency can effectively supervise new entrants, take
the actions to improve the efficiency of the 7(a) program provided
in our testimony, and repeal Section 1071 of Dodd-Frank.
This would help strengthen small business lending, and enhance
the ability of banks to make critical loans that drive economic
growth in our nation’s communities. I really appreciate the oppor-
tunity to testify and I look forward to your questions.
[The prepared statement of Ms. Sims follows.]
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The CHAIR. Thank you very much, Ms. Sims. And now, Ms. Guer-
rero, you are recognized for five minutes.
STATEMENT OF MS. MAYRENA GUERRERO, FOUNDER AND
CEO, COLORFUL RESILIENCE, WEST SPRINGFIELD, MASSA-
CHUSETTS
Ms. GUERRERO. Thank you. My name is Mayrena Guerrero. I’m
a licensed mental health counselor and entrepreneur in Massachu-
setts. I am honored to be here and talk about my experience with
the SBA Community Advantage Loan through Common Capital.
My business is Colorful Resilience, a mental health clinic that
provides outpatient mental health services to Black Indigenous
People of Color, Lesbian, Gay, Bi, Trans, and others with various
sexual and gender identities, immigrants, first generation people
and our allies.
What sets us apart, is that our team members represent the com-
munities we work with. These brings about cultural competency
that comes not just from education, but shared lived experiences
with our clients.
I hold a Bachelor of Science degree from University of Catlica
Santo Domingo in Dominican Republic, and a Master of Science in
mental health counseling from Fitchburg State University in Mas-
sachusetts. Go Falcons.
After graduate school, I worked in community mental health for
three years providing outpatient services. After completing the nec-
essary hours and passing the licensing exam, I obtained my license
to practice mental health counseling independently in Massachu-
setts.
In 2016, I established a private practice marking the beginning
of my entrepreneurial journey as a solo practitioner. My practice
filled up quickly as clients discovered me through the
PsychologyToday.com providers directory. In my published profile,
I discussed my therapeutic approach and comfort in working with
immigrants, people of color, and members of the LGBTQ plus com-
munity like myself. I quickly noticed clients sought me out pri-
marily because of our shared identities.
In 2020, due to the mental health crisis resulting from the pan-
demic and the Black Lives Matter movement, inquiries for services
increased from two a day to 20. My practice was packed and I won-
dered where to refer individuals seeking support based on identity
affinity. I realized then that there was a niche in the market that
was not being addressed, and that is when the idea for Colorful Re-
silience was born.
If I were going to do this, it will be done right. My company will
have multiple practitioners and be the work environment I always
dreamed of. The humanity of the clinician will be front and center
because happy and healthy clinicians, produce better therapeutic
outcomes.
I will do things differently and go against the industry standard.
My clinicians would receive a guaranteed bimonthly paycheck with
a salary that exceed the living wage for our county, based on the
MIT living wage calculator. A yearly inflation raise will be essen-
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tial to prevent a pay cut and an annual productivity raise would
incentivize meeting productivity goals. Both part-time and full-time
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37
Employees will have access to health and dental care. Additionally,
the company will reimburse continuing education credits as 15 CEs
are required annually to maintain our licenses and now, we’re in
year three and in this year, we’re able to offer 401k to our employ-
ees.
Burnout is a significant issue in the mental health field leading
to frequent turnover and a mass exodus from the profession. I rec-
ognize that establishing reasonable and sustainable productivity
expectations is crucial.
Furthermore, supporting and encouraging clinicians to attain
their private practices is essential for maximizing their earnings
and increasing representation from these communities in the field.
In other words, my team members were not leaving Colorful Resil-
ience because we were a lousy employer, but because they were
ready to self-actualize professionally.
So, the idea was there and it was a good one, but I needed cap-
ital. So, I went to talk to my community Bank of 15 years. I sat
down with a person from Commercial Lending, business plan hand,
he listened to me and told me it was an excellent idea, but that
they didn’t fund startups. For them to lend me the 300K I needed
to start my business, I would need to have assets, assets that
amounted to that much, which I didn’t. It was the bank who told
me about Common Capital.
I went to Common Capital’s website and filled out a simple form.
Then with a business plan in hand I met with them. They sup-
ported my idea and told me they would work with me to secure the
funds I needed to make it a reality. Common Capital helped me se-
cure an SBA Community Advantage loan for $250,000 and a
$50,000 microloan at a six-year term and a 7.5 interest rate.
In addition to the loans, Common Capital helped us get mar-
keting and technical assistance help from a third party, contrib-
uting to our recruitment efforts. From the very beginning, Colorful
Resilience has submitted monthly profit and loss and balanced
sheet reports to Common Capital, helping keep us accountable as
we go. Common Capital invested in Colorful Resilience and we con-
tinue to experience and support to this day.
On February 23rd, 2022, Colorful Resilience, LLC became a reg-
istered business entity, and in August of that year, we started see-
ing clients. Today, according to the Boston Business Journal, Color-
ful Resilience is the 27th largest LGBT owned business in the state
of Massachusetts.
We’re a profitable company currently employing 15 people and on
track to hire three more full-time clinicians this year.
We have about 550 active clients and 3000 people have had ac-
cess to care because we exist. Outpatient mental health is primary
care. Clients who are adequately supported and at outpatient men-
tal health level rarely need to access higher, more expensive levels
of care like partial hospitalization, inpatient, or like a residential
program. We keep the cost of mental health care down. We don’t
depend on government grants to function and we pay taxes.
Businesses like Colorful Resilience keep the American economy
going in the right direction. The SBA Community Advantage Loan
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changed my life and the lives of many others. I am grateful that
this program exists and was lucky to have access to it. Please con-
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38
tinue to support organizations like Common Capital so that they
can make businesses like mine possible. Thank you.
[The prepared statement of Ms. Guerrero follows.]
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42
The CHAIR. Thank you, Ms. Guerrero, and thank you for your
work in mental health, we really do appreciate that as well. So now
we will move on to the question-and-answer portion of the hearing,
and I will recognize myself for five minutes for questions, and I will
start with Mr. Fitzgibbon.
So, Mr. Fitzgibbon, as you know, the Biden administration sig-
nificantly weakened underwriting standards in the SBA’s 7(a) loan
program. Since those changes were implemented, the 12-month de-
fault rate has more than doubled and the early default rate has al-
most tripled. How important are strong underwriting standards to
the long-term stability of the 7(a) loan program?
Mr. FITZGIBBON. Thank you, Senator. I think prudent under-
writing provides the foundation for long-term stability. There are
other factors like guarantee fees and so on, but they’re not as im-
portant as underwriting. It’s truly the cornerstone of managing
debt.
The CHAIR. Yes, that’s good. And Ms. Sims, thank you for being
here today. The previous administration allowed additional non-
banks, including fintech firms to participate in the 7(a) loan pro-
gram. So as a community banker, how do your underwriting proc-
esses differ from those that are non-bank lenders, such as fintech
firms, and how do these differences affect the loan performance in
the 7(a) loan program?
Ms. SIMS. Community bankers, we live and we dine and we use
the services that business owners have. So, we see people, when we
provide loans, we’re not just providing loans to paper, we’re pro-
viding loans to people. So, we try to find financial solutions and
complement our banking needs through SBA programs, depending
on how much assets they have, how much capital they need.
And so having that availability through the SBA program is im-
perative for us. The credit underwriting is the same for SBA lend-
ing. We still have to make sure that the loan can be repaid back,
but a lot of times our entrepreneurs need education. They need to
know how much debt they need to have; they need to have a budg-
et. I like to say the saying, if you don’t plan, you plan to fail.
And a lot of times these business owners need guidance from us
as a community banker to be able to either say, hey, you need to
start with us, or they may need to start with a Community Advan-
tage lender just to get started. So just being there to educate the
client makes us very different than fintech, which is where my con-
cern is.
Fintech is more about a predatory approach and trying to just
give money as fast as they can. And they don’t really see them as
human. They just see them as another source of financing and get-
ting rates. So that’s where my concern is the most, is the fact that
they’re taking the human approach away from community banking
when you allow fintech to take over.
The CHAIR. Yeah, I do appreciate that support. Thank you. And
Mr. Fitzgibbon, the SBA has had four straight quarters of negative
cash flow. Over roughly that same period upfront borrower fee rev-
enue has decreased by 13 percent while loan purchases, which
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occur when SBA has to buy a defaulted loan from a lender have
increased by 73 percent. How concerning are these trends and what
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43
steps need to be taken to ensure that the 7(a) program continues
to operate at zero subsidy from the taxpayer?
Mr. FITZGIBBON. Well, thank you, Senator. I mean, four quarters
of data is you can’t draw every conclusion from four quarters of
data, but it’s all we have, and it is alarming for the comparison to
the other vintages. So, I think looking at borrower fees is probably,
and lender fees and reintroducing them is probably necessary.
I would say that the cost of inaction is high, because regardless
of the cost of the taxpayer, every loan that shouldn’t have been
made those defaults, ruins the financial life of that small business
owner. And so, you could take a wait and see approach for the year
and see if things normalize, but I think there’s a human cost to
that, that to me seems unadvisable.
The CHAIR. Okay. Thank you. And now I would like to ask a
question to all the lenders on the panel. Over the last five years,
we have seen a dramatic expansion in the use of lender service pro-
viders or LSPs by SBA lenders. These LSPs assist SBA lenders by
referring processing and servicing loans and are often increasing
the volume of SBA lending.
Does your company utilize an LSP and could you just talk about
the proper role of an LSP in assisting SBA lenders and Mr. Lanza-
Weil I’ll start with you first and then we’ll go to the other lenders.
Mr. LANZA-WEIL. Well that’s easy: No, we don’t.
The CHAIR. Okay. Thank you. [Laughter.]
The CHAIR. Mr. Fitzgibbon.
Mr. FITZGIBBON. We don’t use them. I think they play a helpful
role if the lender that they’re partnering with has good guardrails.
But I think in combined with a fintech lender that it’s all about
churning volume, I think that they can be a part of the problem.
The CHAIR. Okay. Thank you, Ms. Sims.
Ms. SIMS. Starting an SBA department in a community bank is
daunting. It’s a difficult task. And so, it can be very alluring to look
at an LSP. I looked at it at one time when I was starting the de-
partment, but it’s really difficult to keep consistency of your culture
of who you are as a bank when you outsource it to somebody else.
Keeping that consistency and also keeping the culture of your bank
is out of your control.
And a lot of times the customer experiences very bad customer
service because they’re not only dealing with us, they’re also deal-
ing with the LSP. If it’s sold in the secondary market, they’re not
able to renegotiate their interest rates. So, they’re also putting
some guardrails on that. So LSPs do have a sense of purpose, don’t
misunderstand me, but they can also abuse that situation. So, we
do have to enter that cautiously when using LSPs.
The CHAIR Okay. Thank you, that’s very helpful.
Ms. SIMS. And we do not use LSPs, by the way.
The CHAIR. Okay. Thank you very much. I appreciate that. I will
turn it now to Ranking Member Markey for your questions. Thank
you.
Senator MARKEY. Thank you so much. And so great news, really,
really, really great news. In the United States last year. Last year,
the Biden administration, 886,000 jobs directly related to 7(a) were
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either created or retained, great number. Another great number in
Donald Trump’s last year before Covid 2019, the 12-month default
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rate on 7(a) program 2.75, percent last year the last year of the
Biden administration, 2.76 percent default rate.
Now, we do admit that the default rate did go down to 1.32 per-
cent at the height of COVID, but that was because of this great
committee’s work, passing the PPP program, passing the EIDL pro-
gram, we were actually able to lower the default rate because of
our actions to help those small businesses.
But it’s returned to normal, Trump 2.75 percent Biden 2.76 per-
cent. So, we’ll give Trump the win there by one 10th of 1 percent.
Okay. He wins in that one category, but let’s just say we’re back
to normal in terms of the 7(a) program and we should be very, very
proud of the work that all these business people are doing out
there.
This SBA Community Advantage program has demonstrated suc-
cess in making small dollar loans to small business owners that
struggle. We see this story here in Springfield, Massachusetts. We
see the lender and the recipient creating some capitalist magic that
otherwise would not exist.
And these lenders don’t just provide loans: they provide financial
help, marketing help, technical assistance that otherwise Ms. Guer-
rero and people like her, all across the country creating 886,000
jobs would not otherwise have. Which is kind of this brilliant con-
struct that we have. So, Mr. Lanza-Weil, you say in your testi-
mony, we lent to people, not to paper. Can you explain how com-
mon Capital’s approach to making a loan to small business con-
trasts with a conventional lender.
Mr. LANZA-WEIL. Absolutely. We’re a high touch lender. It’s all
about building a relationship with a borrower, with an applicant.
You know, my first day on the job as a bank trainee in 1986 an
old-time lender who smelled like cigar smoke, pulled me aside and
said, you got to know this, know your borrower, it’s the first rule
of lending.
And I think sometimes in larger institutions, and certainly in
fintech, which I’m not here to bash, we lose sight of that. I think
Ms. Sims referenced it as well, building a relationship with an ap-
plicant, getting to know that person as a human being, getting to
know them as something beyond the paper on which their credit
report is printed is so important. And we invest a lot of time. It’s
inefficient, it’s slow, it’s high-touch, and it’s highly effective.
Senator MARKEY. I agree with you. When I needed student loans,
I was sitting next to my mother and father at the First National
Bank in Malden, and Mr. Wentworth the banker, he said, Mr. and
Mrs. Markey, you paid every month on the mortgage, so we trust
you. So, we’ll give the loan. There you go, high touch, they knew
the customer.
So, Ms. Guerrero, talk about how Mr. Lanza-Weil and his oper-
ation was able to help you.
Ms. GUERRERO. Gladly. Common Capital has been just super
helpful. The truth is that I really don’t know how we would exist
as a business if Common Capital and the SBA Community Advan-
tage Loan program was not available to us.
I like the fact that the support that we received from them, I
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mean, you told me earlier there were nine people in your team. I
really don’t know the nine of them, but I know six of them by
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name. And I know how to get a hold of them for questions or any-
thing like that. And that is just that relationship that I don’t have
with my community bank.
Senator MARKEY. And so, give us one quick example, if you can,
of something that they could help you to do that you would’ve had
no capacity as a startup or small business.
Ms. GUERRERO. I mean, exist, sincerely, Senator, who would’ve
given me the—okay, my other option to get the money to start my
business would’ve been a predatory lender that would’ve given me
a really high interest rate in terms that were really not conducive
to profitability. So, it’s as simple as that.
Senator MARKEY. And you could have found them in Springfield,
Massachusetts.
Ms. GUERRERO. Oh, of course.
Senator MARKEY. The predatory lending?
Ms. GUERRERO. You can find them anywhere.
Senator MARKEY. Oh, yes. So, you are just a perfect example of
a wonderful system creating 886,000 jobs that is working with the
default rate equal to the Trump years. Okay. Which is just an in-
credible achievement. So really helps to show how America can be
great in helping startups to get over that financial hump.
The CHAIR. Thank you, Ranking Member. And I do want to
stress, it’s the early defaults are really the issue that we’re getting
at today. The last three years, loan defaults are rising faster than
pre COVID levels. And the program is losing money for the first
time in a dozen years. So, it is something that we do need to scruti-
nize and we need to understand why this is occurring. So, we will
go next to Senator Husted. You are recognized for five minutes of
questions.
Senator HUSTED. Thank you very much. Welcome to all of you.
Thanks for being here today. I have a background overseeing a
small business development center. I have a background on the
board of a community bank, where I was on the loan committee,
and I know how much our regulators scrutinize what loans we do
make and what loans we don’t make.
And that this is—the community banks around the country are
very close to their customers, and they know these issues quite
well. But what I don’t know well, I’ve only been a senator for four
weeks. [Laughter.]
Senator HUSTED. So, I’m, I’m trying to catch up on all the things
that have happened in the past, and I know Mr. Fitzgibbon and
Ms. Sims, you talked about rule and fee changes that had hap-
pened under the Biden administration, and I want to understand
that better, and how that impacted the 7(a) program and just what
the exposure and the risk of that.
So just help educate me a little bit more about what that means,
what the impact is, Mr. Fitzgibbon I’ll talk, start with you.
Mr. FITZGIBBON. Thank you, Senator. So, briefly, the rule
changes reduced the underwriting criteria, and over the last couple
of years the guarantee fee and the lender fee were waived up to,
I believe it’s a million dollars, no guarantee fee to the borrower up
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to a million dollars, this year it’s no lender fee up to $500,000. So
those are fees that support the program in a sense, it’s skin in the
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46
game for the borrower. Those have been waived for a couple of
years.
The concern is that the lessened underwriting criteria has re-
sulted in loans being made that shouldn’t have been made and
that’s what’s driving up delinquency and default rates.
Senator HUSTED. Okay. And Ms. Sims.
Ms. SIMS. So, when you get insurance, you have to pay a pre-
mium to have insurance. So, you think of the government guar-
antee in that sense, is that typically when you’re asking for a gov-
ernment guarantee, it’s protection on the loan for the bank.
And so I’ve been an SBA lender for my entire career, and I’ve
seen the fees my entire life where, you know, SBA has provided
this guarantee, this insurance to the lender, AKA, the customer
gets this insurance as well, there’s protection on their side, so
there’s benefit for the customer on that side, but typically, because
we don’t want this to be a burden on taxpayers, they self-fund
through these fees.
And so that’s, really important to understand that we don’t want
the fees to be inappropriate, but we also want to make sure that
they’re not impacting the taxpayer money.
Senator HUSTED. So, you, so summary, you think that would im-
prove default rates and it would help sustain the program so that
it’s not a burden.
Ms. SIMS. So, sustainability is the key, right? We want to make
sure it can be in the black. We don’t want it to be in the red. So,
if we see that there’s problems there, we got to see, we got to re-
evaluate the situation when it comes to you know, the under-
writing, that’s something else that I’ve never seen, what we call the
SOP dramatically change, to ‘‘do what you do’’, that’s the rule. And
makes it very complicated to know, because I, as a community
bank can operate differently than another community bank.
And having the regulations so loose, if you do what you do, also
doesn’t provide what I call a level playing field. And so that’s im-
portant to also understand is that the SOP has changed. And now
if you feel comfortable providing loans that are what I would say,
not prudent, then you’re allowed to do that because you are not
regulated in the same way as maybe a community bank that has
higher regulations.
Senator HUSTED. Great. Mr. Lanza-Weil, do you have a thought
on that?
Mr. LANZA-WEIL. Thank you, Senator. I don’t know much about
the fees. What I do know is about underwriting standards. We’re
required to maintain our underwriting standards even when the
rules change in the SOP, the standard operating procedures. I
think what we are hearing is that there are some lenders that
haven’t followed their own prudent underwriting guidelines. And
that’s perhaps not the fault of the program, that’s the fault of the
lender.
So, I’d be cautious about throwing the baby out with the bath
water. Our default rate hasn’t changed, and among all the CDFIs
I know, the default rate hasn’t changed because we’re very focused
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on making good loans in our market. It sounds as if there’s a lot
of lenders out there that aren’t doing that. And they should have
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47
more guidance and be more careful. And I would hate for their im-
prudent lending to harm our prudent lending.
Senator HUSTED. Okay. Thank you.
The CHAIR. Thank you, Senator. Senator Rosen.
Senator ROSEN. Thank you. Chair Ernst, Ranking Member Mar-
key, and thank you all for being here and just spending, well, of
course, your life working with small businesses and for your work
really in the mental health space, it’s so needed.
And I’m going to give a little bit of a plug here for Nevada’s cred-
it union and community banks, I know them all so well. And I will
say during the COVID crisis, but all the time, like you said, they’re
in the neighborhood. These are their friends, their neighbors. They
know people have a relationship with them. They know if maybe
a family emergency happened and they can’t pay something now,
and they’ll pay it later. And they really want to see communities
thrive. So, I just know the importance of this kind of lending and
that special touch that you can give it. It’s very meaningful.
And so, I think we can all agree that the 7(a) program, it’s a vital
source of funding for our small businesses. And Nevada business
have received over 700 loans totaling $355 million just last year
alone of 99 percent of businesses in Nevada, or small businesses,
by the way. Although we’re known for those big casinos, 99 percent
are the small businesses. But it should be a shared bipartisan pri-
ority for the program, like you say, to run as efficiently as possible.
And you know, I’m really thankful for your testimony so far, but
it’s not surprising that loan defaults delinquencies, they’re more
likely in times of economic uncertainty. And small businesses may
face declines in sales or subsequent cash flows, mental health, of
course I think you’re going to stay pretty steady there. But simi-
larly, poor economic conditions can put a strain on lenders who
may be tightening their criteria and they reduce their loan volume.
And so, we might look at looming tariffs, unreliable federal fund-
ing, economic uncertainty. It’s critical we understand, again, the
impact it’s going to have on all of you. So, Mr. Lanza-Weil, can you
discuss how the broader economic picture in this country is going
to, in fact, affect maybe the borrower’s loan performance and your
lending activity?
Mr. LANZA-WEIL. Thank you, Senator. I think you said the word
already, it’s the uncertainty. The uncertainty that’s existing in the
marketplace today because of so much rapid and chaotic change is
making it hard for us to plan. I don’t know what the SBA’s budget
will look like next year. None of us do, obviously. I hope it’s robust.
But as we begin planning for our next fiscal year, we don’t know
how much money we can count on for an SBA grant that supports
the business assistance that is so critical to supporting entre-
preneurs like Mayrena.
The business education and training that we provide is focused
on helping people create and understand and use their financial
statements and the management of their business. Mayrena knows
how to be an exquisite mental health counselor, but probably didn’t
know much about QuickBooks before she came to us, or how to
market her business.
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Senator ROSEN. She learned pretty quickly us, and then that’s
what we’re going to ask. How’s the business environment impact-
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48
ing you and the uncertainty impacting you? You’re working to-
gether, giving her the training, the resources, understanding how
to be successful. How are you feeling in this moment?
Ms. GUERRERO. Well, it is true that the need for mental health
services is there, but it’s also true that the economic landscape is
making—for example, I’m noticing that my clients, instead of book-
ing weekly, they are booking biweekly because they can’t afford the
copay, or they have a hard time affording the deductible. Or like,
people are losing their jobs, which means that they’re losing access
to healthcare. Or there could be like an executive order like freez-
ing government funds, which affects Medicaid and Medicare, and
that’s 20 percent of my income. So definitely there’s an impact in
my business.
Senator ROSEN. Well, I want to go back to something you just
mentioned. The importance of the SBA resource partners, as we
see, it makes you successful. You’re a great counselor, but maybe
you didn’t know QuickBooks when you started. And so, we have to
bring that critical support and the training for our small business
owners, from veterans’ business outreach centers, small business
development center, women business centers, and the like.
I was so proud to bring the first ever Veterans Business Out-
reach Center to Nevada. We have almost a quarter million vet-
erans in Nevada, very entrepreneurial. And really provide that tai-
lored support and that free counseling, that technical assistance so
that they can do what they do. And I know I have a short time left.
Can you talk Mr. Lanza-Weil about the importance of this finan-
cial management counseling? I know all of you could really speak
to this, but that’s a big part of what you’re helping a small busi-
ness owner do, and how critical it is that we keep these resources
flowing or their success and payback of the Loans.
Mr. LANZA-WEIL. Absolutely. Many of our applicants and bor-
rowers have received services from our local small business devel-
opment center network, and from our Women’s Business Resource
Center, which is the Center for Women in Enterprise, which serves
all of New England and has had to lay off some staff already, be-
cause they are not getting the federal funds, they need on an ongo-
ing basis to pay their staff to provide services to small businesses.
The way we mitigate risk in a community development financial
institution is with hands-on business assistance and training. By
making Mayrena a better business person, she’s also a better men-
tal health counselor, and a better, a more sustainable and viable
business in the long term.
And at this particularly uncertain time, if the economy worsens,
banks will tighten their lending as they always do. And CDFI loan
funds, which are countercyclical, we’ll see an increase in demand.
And that increase in demand means that we’ll need more help from
our service partners to serve the businesses that we’re able to
make loans to.
Senator ROSEN. Well, thank you. I do believe small businesses
are the engine of our economy in every state. Thank you for having
this hearing, Madam Chair, and we need to continue to invest in
the good work that you’re doing. Thank you. Great.
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The CHAIR. Thank you, Senator Rosen. Senator Booker, you are
recognized.
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Senator BOOKER. Thank you so much. I was excited to get on this
committee when I got here, because I spent so much time as the
mayor trying to get more access to capital for businesses in the
City of Newark. And we were able to see an explosion during a re-
cession, of new investment into our city, entrepreneurs succeeding.
It was one of the best experiences that I got on this committee and
it’s been one of the better bipartisan committees that I’ve had here,
and just finding ways because all of us know in our states, there’s
so much investment worthy people.
I remember the now Secretary of State and I working together
in the midst of the pandemic when the PPP loans coming out. But
we found an arbitrary rule that disbarred people who had been jus-
tice involved returning offenders.
They’d had to be out of for five years before they could qualify
for a PPP loan, that was arbitrary and just dumb. And my Repub-
lican colleagues agreed, and we got it fixed under the Trump ad-
ministration.
So, it’s just a great environment for us to continue to try to do
good work. I’m a big person who believes in entrepreneurialism and
the power for communities of capitalism, the double, triple, quad-
ruple bottom lines that we find.
And so, I just want to jump into some areas really quickly. One
concern having had so much experience with Microloan programs
inspired by the Grameen Bank in my community I’m really worried
that we’ve had, you know, 15 years of mission-based lenders
through the Community Advantage program that have worked
closely with small businesses to help them get the capital they
need, which is often small.
But in January, the SBA announced it would increase the loan
maximum up to half a million dollars, which I think is going to
have a really stunning impact. And right now, I’m hearing from
lenders that they haven’t had communication, really from the SBA
on whether they can offer increased loans to small business own-
ers. There’s a lot of delay going on.
I got an extraordinary note from a small business lender in New
Jersey, ‘‘Last week, we had to decline a loan request from a farmer
in Mullica Hill, who sought to expand his seasonal open-air farm
into a larger year-round operation. The business was doing well de-
spite its seasonal limitations. His goal was to provide his commu-
nity with high quality produce plants and specialty groceries year-
round instead of in his current just five-month operation.
However, during our review, we determined that he required
more than $350,000 to complete renovations, purchase equipment,
and secure the necessary working capital for successful expansion.
He was concerned about the risk of undercapitalization. We had to
decline the request. Given his limited collateral, securing tradi-
tional bank financing would have likely been a challenge for him.
We believe the borrower needed Community Advantage 7(a) loans
of at least $450,000.’’
So, it’s disappointing that small businesses in New Jersey are
missing out on opportunities with these larger loan possibilities.
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And so just I’m hoping you shed some light on this, Mr. Lanza-
Weil, have you been able to offer increased loan amounts in addi-
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50
tion to the small ones that you’re probably very familiar with?
what would the impact be for your business folks?
Mr. LANZA-WEIL. For a long time, Senator our loan limit has
been only $300,000. So, there’s not been an effect in the past for
the changes in the loan limits. But we’d like to raise our loan limit
internally for all sorts of loans. And we find that most of our larger
loans, and a larger loan for us is a loan over $75,000, our people
coming to us with insufficient collateral.
So, if we’re going to raise our loan limit, we need an increased
loan limit on the Community Advantage program in order to be
able to continue to help low asset and low wealth individuals.
Senator BOOKER. So, I just think there’s a lot of common-sense
fixes. I have some other questions I’m going to ask for the record
that I don’t think we’ll be able to get through and the chairwoman
is just rough on me. She particularly picks on New Jersey. So, I’m
going to ask some questions for the record. I hope that you all will
respond.
I want to thank the four of you because I know your heart and
your determination, you do this work really to see communities’
flourish. And it means a lot to me that you would come down here
and testify before the United States Senate. I know time is money,
as you all know that, so it means a lot to me that you’re here.
But I hope you’ll be as the hearing is open, I hope that you’ll be
responsive to some of the other questions I have that I think can
really inform this committee, which I hope continues its record of
just working in a bipartisan manner to help folk out. So, thank
you.
The CHAIR. Thank you. Senator Booker. My ears perked up when
you said farmer?
SENATOR BOOKER. I know.
The CHAIR. I was so invested in——
Senator BOOKER. It’s fourth largest industry. People don’t think
it is the garden state, you know.
The CHAIR. In New Jersey, folks. [Laughter.]
The CHAIR. Thank you, Senator Booker. Now we will recognize
Senator Hirono for five minutes. Thank you.
Senator HIRONO. Thank you, Madam Chair. I just happen to
have met with some farmers from Hawaii, and they have unique
challenges because we are in the middle of the Pacific, and there
are all kinds of invasive species, including axis deer. And, you
know, people don’t know that we have, yes—sheep and others, but
be that as a it may.
I think in you, Madam Chair, we have somebody who supports
the that we can give from SBA, particularly to entities such as
farmers and the people in rural areas. For Mr. Lanza-Weil, I just
heard you say that you would want the loan limits to be raised,
what is the loan limit that you are working with right now?
Mr. LANZA-WEIL. I believe it’s $350,000.
Senator HIRONO. And that you would like that raised to what?
And it requires the Congress to raise that limit?
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Mr. LANZA-WEIL. I don’t know who requires to raise that limit.
Okay. But 500,000 would be helpful to us.
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51
Senator HIRONO. Is that because based on your own experience,
that the amount of the kind of loans that people requests are more
in the 500 range as opposed to the 300,000 range?
Mr. LANZA-WEIL. Senator, we see when they come to us with our
$300,000 loan limit, we see them scaling their plans and their ask
to what they think they can get from us. If we had a higher loan
limit, then they might reach further for the stars. And of course,
everything’s gotten more expensive over time. That’s just the na-
ture of money and time together, the time value of money, I think
they taught us in in business school. So, our $300,000 loan limit
has become somewhat obsolete. And $300,000 doesn’t necessarily
help launch many small businesses. We need to see more resources
for that.
Senator HIRONO. I saw Ms. Guerrero, you are nodding your head,
you would agree with loan limit issue?
Ms. GUERRERO. Definitely. I could have used $500,000 at the be-
ginning of my business. And the reason why I say this is because
I got that $300,000 from Common Capital, and about two years
later, I needed an additional $100,000 from another lender. So, if
I would’ve had that money from the beginning, that would be much
easier for me.
Mr. LANZA-WEIL. If I may, Senator, excuse me for interrupting.
As Mayrena said, as a business grows, if they outgrow us, at least
in Western Massachusetts, there’s not another resource. We need
to have more resource so we can help the businesses as they grow,
not just as they establish.
Senator HIRONO. Oh, that certainly makes a lot of sense. Ms.
Guerrero, you got your loan through the Community Advantage
program, which was created frankly not too long ago, and it was
started as a pilot program. Could I ask, how much was your loan
from the Community Advantage program?
Ms. GUERRERO. The Advantage Program gave us $250,000. And
then I had an additional 50 grand microloan.
Senator HIRONO. So, without the Community Advantage program
that you would have had a hard time getting your business off the
ground?
Ms. GUERRERO. It would not have happened, Senator, because I
wasn’t going to fall prey of like predatory lending.
Senator HIRONO. How are you doing now?
Ms. GUERRERO. Oh, we are doing really well. We’re really ex-
cited. I must say we’re in conversations with Boston Impact Initia-
tives, which is a venture capital sort of firm that works with minor-
ity owners. And they’re going to do a structured equity deal with
us and just give us money so that we can have doubled the work-
force that we currently have. So, we’re about to grow significantly.
Senator HIRONO. Congratulations.
Ms. GUERRERO. Thank you.
Senator HIRONO. I really wish you the best. Mr. Lanza-Weil, then
can you speak a little bit more about the importance of community
lenders, because community lenders in a state like Hawaii, very
important, but that’s where your experience lies. Can you talk a lit-
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tle bit more about how important these kinds of lenders are in
your——
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52
Mr. LANZA-WEIL. Absolutely. I think any high touch lender is
very important. I started my career at a community bank in the
San Diego area. To the extent that the bankers on either side of
me are community lenders who have a high touch approach, I
think that’s very important.
I think on the continuum of credit, we need everything from com-
munity lenders that are certified CDFIs and other community loan
funds on through to community banks and credit unions. It’s the
know your borrower conversation, that I think perhaps you weren’t
in the room for yet, Senator. The first rule of lending is-know your
borrower. Smaller banks, community banks and community loan
funds get to know their borrowers, and that enables them to say
yes more often and to manage the risk when they do say yes.
Senator HIRONO. So, for the two witnesses who are sitting to the
left and right of you, are you both community lenders?
Ms. SIMS. Yes. I’m an SBA lender that works for First Security
Bank, and we’re community bank.
Senator HIRONO. So, you certainly would agree that community
lenders like yours very important.
Mr. FITZGIBBON. Yes. Senator, we’re community bank in the mid-
dle of Iowa.
Senator HIRONO. Thank you. Thank you, Madam Chair.
The CHAIR. Thank you very much. And I think we’ll go ahead
and wrap our hearing. Okay. I want to say thank you so much for
the witnesses for being here today. This was a very productive con-
versation. Really appreciate your time and input to the committee
today.
And I ask unanimous consent that the record of today’s hearing
remain open for two weeks for members to submit questions, revise
and extend their records, and submit additional information into
the record. Without objections, so ordered. And with that, the Com-
mittee on Small Business and Entrepreneurship——
Senator MARKEY. Can I make a closing statement? Okay. Please,
you’ll like it, I promise.
The CHAIR. Oh, we will allow. Proceed.
Senator MARKEY. Thank You. Just want to say that the Commu-
nity Advantage Program was a pilot program and is still not law.
And the Senate Small Business Committee, in its wisdom in 2023,
passed out of this committee by 18 to one, the codification of the
Community Advantage Program. It was blocked on the floor by
Senator Paul, which is a common fate for many pieces of legisla-
tion, I might say. But we could work together once again, to try to
try to pass that bill.
And I just wanted to note that even in early defaults, it was 1
percent during the Trump administration back in 2019, and it was
1 percent last year in the Biden administration. And it went down
lower actually, because of PPP and—but even the early default is
kind of just returning to where it was before COVID.
And the 7(a) loan program is healthy. 99 percent of loans are
being repaid despite the short-term increases in the default rate.
This rate is actually normalizing back to pre-pandemic levels,
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which is great. And I just want to go back to Mr. Wentworth at
the First National Bank of Malden.
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I remember sitting there, it looked a lot like you. Well, Mr. Went-
worth really didn’t look like you, Mr. Lanza-Weil, if you know what
I mean. But the earlier generation, those old waspy bankers in
New England, in that small city. And my father drove a truck for
the Hood Milk company, and my mother was very mad at me for
losing the full scholarship. You know, that I should have studied
harder, she said, and we are sitting there, and my mother said,
take out as much money as you want, Eddie, because you’re going
to pay it back, not your father. He’s not going to take a second job.
And I was in Congress at age 30, and because I went to the
school at Boston College Law School, I was elected at age 30. Those
loans helped; my father’s a milkman. And I was paying back the
student loans for six years as a member of Congress. I was the
poorest member of Congress, all I had was student debt and my car
payments. I had no other assets, but he knew his lender. I mean,
he knew his customer, he knew who he was loaning to. It was my
mother and father, and they would make sure I paid it back.
So essentially, that’s the essence of who you are. You’re giving
people who maybe the rest of the world can’t quite see as well as
they could, but because you know them and you trust them, you
make them work at the same level as other businesses that maybe
have those pre-existing relationships. So, I thank you so much,
Madam Chair.
The CHAIR. And witnesses, stay put. We had one member sneak
in before the fall of the gavel. So, Senator Hickenlooper, you are
recognized for five minutes.
Senator HICKENLOOPER. Thank you, Chair and I appreciate you
allowing the meeting to extend. I appreciate your indulgence. This
is something I really care about, but in a previous life, seems like
several lives ago, I came in as a new governor in Colorado, and we
did a bottom-up economic development plan.
We went to all 64 counties, got everyone to write an economic de-
velopment plan of what did they see in 50 years for their commu-
nity, what should the state do to get there? And we took all those
together and we made something, we called the bottom-up Eco-
nomic Development Plan. And it was amazing how universal the
vision was. Some was obvious, cut red tape and needless bureauc-
racy. Sometimes it was, get a better workforce training, stop mar-
keting the state for skiers, but for entrepreneurs. But one thing we
heard everywhere was to find ways to get better access to capital,
for people trying to start small businesses.
So, Mr. Lanza-Weil, I guess I’ll start with you. This Community
Advantage program of expanding access to capital for underserved
communities. I mean, it supports so many entrepreneurs in a vari-
ety of small businesses and helps them in accessing capital. In
many cases, they wouldn’t be able to find that capital anywhere,
they’re not from a community that has a lot of family money or
friends and networks already in place.
So how has the Community Advantage program made it easier
for Common Capital to reach some of these underserved commu-
nities?
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Mr. LANZA-WEIL. Thank you, Senator. I recall you were in the
brewery business, is that correct?
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Senator HICKENLOOPER. I was a brew pub, so it was a really a
restaurant, but it had a brewery inside of it.
Mr. LANZA-WEIL. When three of our 41 Community Advantage
borrowers have been micro-breweries.
Senator HICKENLOOPER. Oh, get out. Really. Who knew?
Mr. LANZA-WEIL. It’s true fact. Every single one of our 41 com-
munity Advantage borrowers came to us with a weakness that we
could not overcome through our standard underwriting. It’s almost
always a lack of collateral.
We have people that have saved money for years to have their
10 percent equity injection. They’ve gotten the experience they
need in their industry. They have a good business plan that’s rea-
sonable and achievable. They’re buying assets in some cases with
their loan, in the case of Mayrena, it was couches and clocks. In
the case of a microbrewery, it’s some hard assets that have more
value, but every small business that forms it starts up needs work-
ing capital. And that doesn’t act as collateral on its own.
So, we’ve needed the CA program to help bridge the gap when
we’ve had a collateral deficiency. And I want to make clear Sen-
ators, that that doesn’t cover the whole thing. The guarantees only
75 or 85 percent, or in one exceptional case, 90 percent. We’re still
taking risk in the formation of that business, as is the entre-
preneur who’s put everything they have into it. And if it weren’t
for the Community Advantage Program, we wouldn’t be able to
make many of those loans. Mayrena expressed already that her
business wouldn’t exist without it.
Senator HICKENLOOPER. Yes. I appreciate that and I salute you
for all that work. I—all of you really, when I read the docket last
night, it was really impressive. Mayrena, obviously the small busi-
nesses are important, not just for the entrepreneurs and not just
for the employees, but for the communities they serve. In many
cases, they serve a niche. And one of the wonderful things about
small businesses in underserved communities, people live there.
They know what the niche is, they know what the community
needs. And I think that’s an advantage that many businesses don’t
have.
You’ve talked about how the SBA programs helped you start
your business of Colorful Resilience—love the title. We entre-
preneurs spend our lives thinking of good titles, good names but I
love the notion of Colorful Resilience in terms of mental health. It’s
a very powerful image. How would you describe the impact of your
business on your community?
Ms. GUERRERO. Well, huge really, because the communities that
we serve, the BIPOC, LGBT, first Generation immigrant commu-
nities, have just historically been underserved, just forever. And
that gap became greater after the pandemic. And so, we all know
that there’s a mental health crisis. There’s a lack of providers for
the demand of mental health services. So, our existence and that
cultural competency that comes from working with providers that
have shared identities, has been huge. It’s a huge impact in the
community.
DMWilson on DSK7X7S144PROD with HEARINGS
For example, my marketing budget is $80; $50 for my website,
$30 for my Psychology Today directory. Why? Because clients come
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55
to me. I don’t go looking for them. So that tells you the impact that
it has in the community.
Senator HICKENLOOPER. Absolutely. Amazing.
Mr. LANZA-WEIL. Senator, may I add to that please?
Senator HICKENLOOPER. You have to talk to the chair because
I’m out of time.
Mr. LANZA-WEIL. Madam Mayrena’s business is not the only cul-
turally competent and focused mental healthcare business that we
financed. And we have, I think, a total of five mental health ther-
apy businesses in our portfolio. But Mayrena’s and one other are
very much focused on people of color and others that have been tra-
ditionally underserved.
Senator HICKENLOOPER. It’s a great example. I’m so glad you
guys could find time to come here. And I will watch, I’ve been run-
ning around, but I’ll watch the videos tonight to catch up. Anyway,
I yield back to the chair. Thank You.
The CHAIR. Thank you. Senator Hickenlooper. Okay, we’re going
to try this again. Thank you very much. To our witnesses, thank
you again for being here today, really productive discussion. Thank
you for making it in right before the fall of the gavel.
So, at this time, I will ask unanimous consent that the record of
today’s hearing remain open for two weeks for members to submit
questions, revise and extend their records, and submit additional
information into the record. Without objection. So, ordered.
[The information referred to follows:]
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The CHAIR. And with that, the Committee on Small Business and
Entrepreneurship stands adjourned. Thank you all very much.
[Whereupon, at 3:51 p.m., the hearing was adjourned.]
Æ
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- www.govinfo.gov