Small Business in Crisis: The 2020 Paycheck Protection Program and Its Future (Senate Small Business Committee hearing, December 10, 2020)
Summary
The printed record of S. Hrg. 116–519, a Senate Committee on Small Business and Entrepreneurship hearing titled Small Business in Crisis: The 2020 Paycheck Protection Program and Its Future, held December 10, 2020 and printed in 2022. Chairman Marco Rubio and Ranking Member Benjamin L. Cardin gave opening statements. Four witnesses testified: Douglas Holtz-Eakin, President of the American Action Forum; Iman McFarland, Chief Operating Officer and Co-Owner of 21st Century Expo Group, Inc.; Dafina Williams, Senior Vice President for Public Policy at the Opportunity Finance Network; and Thomas G. Zernick, President of SBA Lending at First Home Bank, St. Petersburg, FL. The appendix adds a Community Gyms Coalition statement, a Small Business Investor Alliance letter dated December 8, 2020, and a Wall Street Journal piece by Michael Faulkender and Stephen Miran.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“Small Business in Crisis: The 2020 Paycheck Protection Program and Its Future (Senate Small Business Committee hearing, December 10, 2020).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/small-business-in-crisis-the-2020-paycheck-protection-program-and-its-d9a79d5250/
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S. HRG. 116–519
SMALL BUSINESS IN CRISIS:
THE 2020 PAYCHECK PROTECTION PROGRAM
AND ITS FUTURE
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
DECEMBER 10, 2020
Printed for the Committee on Small Business and Entrepreneurship
(
Available via the World Wide Web: http://www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
46–604 PDF WASHINGTON : 2022
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SIXTEENTH CONGRESS
MARCO RUBIO, Florida, Chairman
BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
JAMES M. INHOFE, Oklahoma CHRISTOPHER A. COONS, Delaware
TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii
JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois
MITT ROMNEY, Utah JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
MEREDITH WEST, Republican Staff Director
SEAN MOORE, Democratic Staff Director
(II)
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C O N T E N T S
OPENING STATEMENTS
Page
Rubio, Hon. Marco, Chairman, a U.S. Senator from Florida ............................... 1
Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator from Maryland .. 4
WITNESSES
Holtz-Eakin, Mr. Douglas, President, American Action Forum, Washington,
DC .......................................................................................................................... 7
McFarland, Ms. Iman, Chief Operating Officer/Co-Owner, 21st Century Expo
Group, Inc., Capital Heights, MD ....................................................................... 19
Williams, Ms. Dafina, Senior Vice President, Public Policy, Opportunity Fi-
nance Network, Washington, DC ........................................................................ 24
Zernick, Mr. Thomas G., President of SBA Lending, First Home Bank, St.
Petersburg, FL ...................................................................................................... 34
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Cardin, Hon. Benjamin L.
Opening statement ........................................................................................... 4
Community Gyms Coalition
Prepared statement .......................................................................................... 72
Holtz-Eakin, Mr. Douglas
Testimony .......................................................................................................... 7
Prepared statement .......................................................................................... 10
McFarland, Ms. Iman
Testimony .......................................................................................................... 19
Prepared statement .......................................................................................... 21
Rubio, Hon. Marco
Opening statement ........................................................................................... 1
Small Business Investor Alliance
Letter dated December 8, 2020 ....................................................................... 75
Wall Street Journal-Faulkender, Michael and Miran, Stephen
Prepared statement .......................................................................................... 77
Williams, Ms. Dafina
Testimony .......................................................................................................... 24
Prepared statement .......................................................................................... 26
Zernick, Mr. Thomas G.
Testimony .......................................................................................................... 34
Prepared statement .......................................................................................... 36
(III)
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SMALL BUSINESS IN CRISIS:
THE 2020 PAYCHECK PROTECTION PROGRAM
AND ITS FUTURE
THURSDAY, DECEMBER 10, 2020
UNITED STATES SENATE,
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m., via video-
conference and in Room 301, Russell Senate Office Building, Hon.
Marco Rubio, Chairman of the Committee, presiding.
Present: Senators Rubio, Risch, Scott, Ernst, Inhofe, Young, Ken-
nedy, Romney, Hawley, Cardin, Cantwell, Shaheen, Booker, Coons,
Hirono, and Rosen.
OPENING STATEMENT OF HON. MARCO RUBIO, CHAIRMAN,
A U.S. SENATOR FROM FLORIDA
Chairman RUBIO. The hearing will come to order, and today’s
hearing will be focused on the Paycheck Protection Program. I
would like to thank everyone that is joining us, both in person and
virtually. I want to welcome our witnesses before the Committee.
I believe we have two virtually and two here in person.
This pandemic, of course, has affected virtually every part of our
lives—our health, our education, our jobs, our communities, our
families, our economy, even the way we conduct business here.
To explain, I generally do not speak with a mask on. We have
a lot of young people and others here who work in our process who,
at this time of year, go home to see their families on the holidays.
I would hate for anyone to be unable to do so because somebody
tells them they sat too close to me for too long a period of time,
and as a result they have to stay here over the holidays. So in an
abundance of that caution, if anybody has any problems hearing
me they will let me know and we will figure out how to work
through that.
The pandemic, the nationwide lockdowns, were then, and they
remain now, a big crisis for America’s small businesses. In March,
as the pandemic and the lockdowns began, crushing small busi-
ness, the Senate and bipartisan members of this Committee re-
sponded by coming together and enacting what I think is, without
a doubt, historical support for small businesses.
One of those lifelines was a program that was entirely new, and
it did not exist, it had never existed before, and it was put together
in a very short period of time. It was built upon the network of
(1)
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community banks that the SBA has worked with for many years,
to deliver needed capital to small businesses, and that support was
what is now known as the Paycheck Protection Program.
And in this crisis we called upon every inch of America’s finan-
cial infrastructure to help deliver that help that it brought to small
businesses. And I think it is fair to say that it was not a perfect
program, because no government program is possibly perfect, not
to mention one put together in six, seven days and implemented
over a short period of time. But I do think, without a doubt, it is
clear that the Paycheck Protection Program has been the single
most effective part of the CARES Act that was passed, and one of
the most effective Federal relief programs in modern history, deliv-
ering more than $525 billion to small businesses and nonprofits all
across the United States.
It had two goals. The first goal was to help workers keep their
jobs, to provide funds so that employers did not have to lay people
off, keep workers attached to employment, and second, and related
to the first, was helping small businesses to be able to stay open,
not have to permanently close their doors.
Under the crisis conditions in which we created the program, to
achieve these goals required setting a third goal—to deliver the
support the PPP would provide, and do so as quickly as possible
before those small businesses ran out of time and money.
As we look back, I believe it is more than fair to say that the
program accomplished all three of those goals. The goal of worker
retention, small businesses receiving PPP report saving up to 55
million jobs. In May 2020, the first jobs reports after the full
amount of PPP loans had been disbursed showed the biggest month
for jobs gained on record since 1939, and beat economists’ expecta-
tions by over 10 million jobs.
As to the goal of helping small businesses, more than 5.2 million
small businesses and nonprofits received PPP loans. By the end of
May, the U.S. Census Bureau reported that more than 70 percent
of all small businesses in the entire country—70 percent—received
PPP loans.
As to the goal of delivering assistance as quickly as possible, the
SBA approved nearly $350 billion in PPP loans in just two weeks.
And this is by far, and by any measure, the fastest delivery of
funds, at this scale, for a fiscal policy program, in modern history.
This program was a tremendous success in meeting the goals
that we created it to meet, and now I believe, personally, it is time,
in a more tailored and surgical way, to do it again. The work that
the first round of PPP began, though successful, it is still incom-
plete. The pandemic is still raging, lockdowns are again being con-
templated, placed on small businesses and/or restrictions continue
to be in place, allowing restrictions on their ability to operate, con-
sumer activity in certain sectors is falling. And so by enacting a
second round of tailored PPP assistance we can help build upon the
success of the first round, fix some of the problems that were iden-
tified to that first round, and protect small businesses through the
winter as we walk that bridge toward what we hope will be a wide-
ly-distributed vaccine that gets us to a point where we are no
longer dealing with many of these restrictions.
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As we consider that second round, this hearing provides a good
opportunity to look at and take stock of what we learned in the
first round. The priority of speed that we gave the program, how-
ever necessary, it did create some initial problems in implementa-
tion. For example, the average loan size approved at the beginning
of the program was larger, and the number of companies that had
access to capital elsewhere received PPP loans. That problem was
resolved, yet the program’s critics persist in saying that the pro-
gram was skewed toward larger businesses.
The fact is 70 percent of PPP loans, 70 percent of the actual indi-
vidual loans, went to small businesses that had 10 or less workers.
The average business receiving a PPP loan at the end of the pro-
gram had 13 workers, and 80 percent of all funds went to busi-
nesses with fewer than 200 employees, even though all businesses
with 500 or fewer were eligible.
Another example is related to fraud. We have learned a good
deal about the need for inspection and oversight by the admin-
istering agencies. However, the evidence so far does not suggest a
fraud rate in PPP that is higher than that of any of the other pro-
grams in the CARES Act, and the evidence suggests, actually, that
PPP suffers from a lower risk of fraud, much lower risk than the
EIDL program, which is an existing program. And one of the rea-
sons for this success has been the fact that the banks and credit
unions delivering PPP are still subject to Federal antifraud regula-
tion, and this public-private partnership, in combination with in-
creased SBA and Treasury oversight, allowed us to strike an im-
portant balance of ensuring fraud protection while also distributing
program funds in a timely manner.
Another example is with respect to the equitable distribution of
funds to small businesses owned by people of all backgrounds, all
races, and ethnicities. As we explored in a hearing this past July,
we have learned the importance of community financial institu-
tions, like CDFIs and the technical assistance grants through agen-
cies like the Minority Business Development Agency. Though cer-
tainly a disparity at the program’s beginning, the heroic work of
community financial institutions such as these helped to overcome
much of that.
There was a survey completed by Goldman Sachs that found that
by the conclusion of the program, 93 percent of Black-owned small
businesses applied for a PPP loan, and of those who applied, 95
percent received a PPP loan. According to the SBA’s demographics
survey data, minority-owned small businesses received a higher
percentage of PPP loans than their relative share of business own-
ership in the U.S. Black- and Hispanic-owned small businesses ac-
count for 7.8 percent of total small businesses. So 7.8 percent of the
small businesses in the country are owned by African American or
Hispanic, and yet they successfully received 10.6 percent of the
total PPP loans disbursed.
So despite some negative narratives that I have seen, I have
heard loud and clear about the success of PPP from small business
owners throughout the country. For instance, Between Pixels, in
Marietta, Georgia, said, ‘‘We applied for and received the PPP loan,
which helped us focus our energy on pivoting our business model.
The funds allowed us to reassign staff to these opportunities rather
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than cut positions, which ended up making up for the revenue we
lost from our traditional services,’’ end quote.
Mike Zaffaroni, the owner of Liberty Landscape in Jacksonville,
Florida, said, ‘‘If I had to sum up the PPP loan in one word for us,
it gave us confidence. We would be in a much different position
without it.’’ That is the end of his quote.
So these represent only a small portion of the comments we have
received from small businesses about the program. As I said at the
outset, while there are certainly better days ahead with the prom-
ises of successful vaccines—we should have great confidence that
certainly before this time next year we will all be living a very dif-
ferent situation—we do have an immediate need over the next few
months that requires action. Small businesses need more help to
make it through this winter. Given a potential second wave loom-
ing and impending government lockdowns in different jurisdictions,
it is vitally important.
I think perhaps the biggest evidence of all how this program has
worked is that in a time in which it is difficult for the parties, and
even within the parties to agree on many things, Congress has
voted unanimously, on three separate occasions, to fund and en-
hance PPP, and I believe it is far past time for us to come together
and do it once again. It had been my hope we would have done it
months ago, but I hope we will do it now. I cannot imagine not
doing it, what its implications would be.
So as I said, today’s hearing will provide us an opportunity to
evaluate the first round, to discuss the future of the program, with
all these goals in mind, and I look forward to hearing from today’s
expert panel on their experiences with PPP.
And now I am going to recognize the Ranking Member, Senator
Cardin, who will deliver his opening statement.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
RANKING MEMBER, A U.S. SENATOR FROM MARYLAND
Senator CARDIN. Senator Rubio, first thank you, and in the inter-
est of safety I am doing this remotely so that we can have fewer
people in the committee room.
This is likely to be Senator Rubio’s last hearing chairing the
Small Business and Entrepreneurship Committee. He is moving on
to, as I understand, different responsibilities in the next Congress.
And I just wanted to take a moment to congratulate you on an in-
credible record during these two years that I have had the honor
to sit next to you as the Ranking Democratic Member.
You have really put the Small Business and Entrepreneurship
Committee on the map in the United States Senate during this
pandemic. Under your leadership, we have really responded to the
needs of small businesses, and we recognize that small businesses
are the growth engine of this country. It is where jobs are created
and innovation takes place, and they are not as resilient in dealing
with economic downturns. And it was absolutely essential that we
respond in a very major way during this pandemic, and under your
leadership we were able to do that.
So I want to congratulate you on just a great record, and I look
forward to working on this Committee on other issues, and I know
you will be remaining on this Committee, as we look at how we can
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do things moving forward to ensure the success of small busi-
nesses.
The programs that you referred to that we were able to develop,
particularly the Paycheck Protection Program, was one that in-
volved the work of all the members of Committee, and I just really
wanted to acknowledge that this has been really a bipartisan group
effort to develop ways that we could provide comprehensive help to
small businesses during this pandemic. Every member needs to be
praised. I particularly want to acknowledge the former Ranking
Member on our side, Senator Shaheen, for the work that she did
as we were crafting the different programs in the CARES Act.
You have mentioned the Paycheck Protection Program was stood
up very quickly. I agree with you. I think the Paycheck Protection
Program, the enhancements in the EIDL program, including
grants, the loan forgiveness program, and the fact that we not only
passed it but we also acted two other times to replenish and extend
the Paycheck Protection Program. We did it when we replenished,
we directed that funds be targeted to underserved communities.
When we look at what we did, it was very successful and I agree
with you. I want to underscore that this was a program stood up
nearly overnight, to get money out quickly to small businesses to
keep them alive, and it accomplished its intended purpose.
More needs to be done. We passed the CARES Act that included
these programs in mid-March, and when we passed those in mid-
March we really thought that this pandemic would be behind us by
this past summer, but that was not the case. So I agree with Sen-
ator Rubio that we need to act, we should have acted before now,
in extending relief to small businesses. It is desperately needed.
As we are holding this hearing, the United States is recording
200,000 new virus cases a day, six times higher than we saw last
spring, three times higher than we saw this past summer. In the
past we have regional breakouts that caused concern. We now have
a nationwide breakout of the virus in every part of our country.
New restrictions are being imposed, and those businesses that de-
pend upon larger gatherings are very much compromised as this
pandemic continues. Food services, hospitality, entertainment,
travel, tourism—the list goes on and on.
We need to respond, but we need to target the next round of re-
lief for several reasons. Let us remember what we learned from the
CARES Act. We learned that our experience is that we put into the
CARES Act a provision to require the Small Business Administra-
tion to issue guidelines for underserved and underbanked bor-
rowers. They did not do that. We need to be more prescriptive, as
we did when we replenished the funds to allocate to CDFIs, micro-
lenders, and other mission lenders.
We need to be more specific as to how we allocate these funds
for several reasons. I believe we need to concentrate on smaller of
the small businesses. Senator Rubio, I appreciate the numbers that
you were able to present today. You and I know we have had one
difficult time getting information out of the SBA as to how this pro-
gram has worked. Their transparency has been terrible, and it is
something that needs to be corrected. We need to have account-
ability and we need to understand the program as we move for-
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ward, and we have been very much handicapped because we have
not been able to get that type of information.
But one thing is clear as we go into a second round, and you and
I understand this. We are going to have limited resources. We are
not going to have as much as we would like to have. We are going
to be dealing with a bridge aid package, if we can get it done, that
will hold us all for several months. We need, therefore, to recognize
we cannot do everything we want to do, and the hardest-hit small
businesses are the smaller small businesses. So let us target the
program to the smaller of the small businesses. Let’s make sure it
is based upon need so that we get to the small businesses that real-
ly need help, those that have been dependent upon large gath-
erings that cannot have those gatherings in their business.
And let us reach out to the underserved community, because
what we learned in the CARES Act, that those who did not have
priority-established relationships with lenders were not first in
line. In some cases they were not able to get into the line at all.
So we have to recognize that we have to reach out and do more to
make sure the help gets to the underserved community.
And let us also recognize that for many small businesses another
loan is problematic. They need grants. Grants are very important.
That is why, as we look at the next round, let us concentrate on
how we can fine-tune the EIDL advance program, which are direct
grants by the Federal Government without going to lenders, how
we can refine that grant program to meet the needs of the under-
served and underbanked community.
We have already seen this model in action in my hometown of
Baltimore, where the Baltimore Development Corporation has pro-
vided support to small businesses based on need and other factors,
not on first-come, first-served basis. It is vital that we learn from
the best practices of local organizations like the Baltimore Develop-
ment Corporation, as well as directly from small business owners,
because they have the best understanding of what is working and
what is not working.
Mr. Chairman, we also need to make sure that we maintain the
bipartisan support that was the hallmark of passing the original
programs to help small business, as we get into the next round. We
need to make sure that we include the Democrats, Republicans,
House, Senate. Let’s get this done.
I want to thank our witnesses for providing their testimony this
morning. I am especially looking forward to hearing from Maryland
small business owner, Iman McFarland, who will share with us the
impact COVID–19 has had on her event space, and tell us how she
was able to use the resources provided by the CARES Act to pivot
her business.
My hope is that we will leave this hearing with a better under-
standing of how best to improve not only PPP but all the programs
that small businesses need to make it through the pandemic, in-
cluding EIDL, Small Business Debt Relief Program, and future
grant programs for small businesses unable to take on additional
debt.
I look forward to hearing from our witnesses. Thank you.
Chairman RUBIO. Thank you, Senator Cardin, and, by the way,
I can just say none of this would have been possible without a part-
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ner like Senator Cardin, and everybody on the Committee and so
many others. And, a particular thanks to Senator Shaheen and
Collins who are not members of the Committee but were intricately
involved in the design of this program as well. It was a very re-
warding process to be a part of that and I want to thank all of
them for all the work they put into it. They were phenomenal.
Our witnesses today, we have two here with us, Ms. Iman
McFarland, who is the Chief Operating Officer and second-genera-
tion co-owner of the 21st Century Expo Group, the Nation’s only
woman- and minority-owned general service contractor in the
events industry, and serving clients for more than 28 years.
And Douglas Holtz-Eakin, who is the President of the American
Action Forum. He was the Chief Economist of the President’s
Council of Economic Advisors from 2001 to 2002. He was the Direc-
tor of the Congressional Budget Office from 2003 to 2005.
Joining us remotely is Ms. Dafina Williams, the Senior Vice
President of Public Policy at the Opportunity Finance Network, the
National Association of Community Development and Financial In-
stitutions, and Thomas Zernick is the President of CreditBench,
the SBA lending division at First Home Bank in St. Petersburg,
Florida.
I want to thank all of our witnesses for being here with us today,
and I think we will just begin with the witnesses here. Mr. Holtz-
Eakin, we will start with you, and then we will continue with Ms.
McFarland, and then go to our witnesses that are remote.
But thank you all for being a part of this important hearing. It
is very timely, not just to look back at the previous round of assist-
ance but as we are contemplating new assistance how we can learn
from the problems in the first round and make it better. So thank
you all for being here.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT,
AMERICAN ACTION FORUM, WASHINGTON, DC
Mr. HOLTZ-EAKIN. Chairman Rubio, Ranking Member Cardin,
and members of the Committee, thank you for the privilege of
being here today. Let me make a few brief point and then I look
forward to answering your questions.
In thinking about evaluating the Paycheck Protection Program,
PPP, it is important to remember the economic conditions into
which it was introduced. When the coronavirus pandemic became
apparent in mid-March, American households experienced an enor-
mously sharp pullback in spending as they stopped consuming
services that involved personal contact. So people did not go to res-
taurants, people did not get on airplanes, they did not go to hotels,
and in large swaths of American business customers simply dis-
appeared and there was an enormous cash flow crunch in the U.S.
economy.
In the face of that kind of a cash flow crunch, what can you do?
Well, businesses, first of all, sold everything they could in order to
raise cash, and we saw massive selloffs in financial markets, which
required the Federal Reserve to step in and stabilize, which they
did quite effectively. But in those circumstances it is also tempting
to simply lay everybody off, and there was a need for intervention
to stop those layoffs, preserve employer-employee relationships,
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preserve the infrastructure of the American economy through the
pandemic as it bridged to the other side, and in those cir-
cumstances, also provide the paycheck for American households to
continue to live in the face of such an enormous downdraft.
It is hard sometimes to imagine just how bad those conditions
were. It turns out that in the second quarter of 2020, the U.S. econ-
omy contracted by 9 percent. In the worst full year of the Great De-
pression, 1932, the U.S. economy contracted by 12 percent. So we
experienced something very close to that in the second quarter of
2020.
In those circumstances, what the PPP did was simply fantastic.
It is—and I agree with the Chairman’s assessment—the single
most effective fiscal policy ever undertaken by the United States
Government. It got over $500 billion out the door and into small
businesses in about four weeks. It preserved employee relation-
ships with their employers, thus preventing a lot of economic scar-
ring that would take a long time to recover from. And it provided
that $500 billion in liquidity, in cash flow, to the workers and their
employers in order to get through the 22 months that the program
was designed to cover.
Its enormous success really stands out in contrast to, for exam-
ple, the Main Street Lending program, which was intended to help
larger employers, and which effectively provided no support what-
soever. And so in thinking about the PPP, I think it is important
to recognize that speed was of the essence, and speed was in the
program, the scale of the response had to be enormous because the
scale of the downturn was enormous, and, you know, it had to real-
ly put a premium on speed and scale, and it did that very, very
well.
The Census Pulse data is really quite striking, that reports that
three-quarters of American small businesses received a PPP loan.
I think the success is just enormous.
We now find ourselves in a similar situation, where we need a
bridge to the other side of another surge in the coronavirus pan-
demic, and another round of PPP, I think, is entirely merited. And
the good news is there is a lot of experience from the first round,
that would actually be brought to bear on a second program, and
it can be designed with a little more targeted approach, because we
are not experiencing the same kind of broad cash flow crunch that
we saw earlier in the year.
So in going forward, it would make sense to, first of all, address
those issues with the lenders. I think it is important that lenders
be given strict limits on their liability so that they are held harm-
less from any misrepresentation by borrowers. That was close but
not quite done the first time around. I think that would be a big
improvement.
There is no need to cover publicly-traded companies. They have
access to capital markets. Capital markets are functioning ade-
quately, and so it can be targeted more carefully.
I do not think it is a failure of the PPP to have gotten loans out
to the larger employers. The whole point was to preserve employ-
ees’ paychecks. Large employers have more employees. That was a
success in that moment. But going forward it could be targeted to
smaller firms, under 300 employees and the like. And, you know,
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I think having both less lender liability and a broad array of lend-
ers will ensure that the funds are distributed more broadly in the
U.S. economy, and that would be a success going forward.
So I thank you for the opportunity to be here today. I am quite
encouraged by what was done last spring. I think it is possible to
do the same kind of good again in this moment, and I look forward
to answering your questions.
[The prepared statement of Mr. Holtz-Eakin follows:]
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Chairman RUBIO. Thank you very much. Ms. McFarland?
STATEMENT OF IMAN McFARLAND, CHIEF OPERATING OFFI-
CER/CO-OWNER, 21ST CENTURY EXPO GROUP, INC., CAPITOL
HEIGHTS, MD
Ms. MCFARLAND. Thank you, Chairman. Chairman Rubio, Rank-
ing Member Cardin, and distinguished members of the Committee,
thank you for the opportunity to testify before you this morning.
My name is Iman McFarland and I am the Chief Operating Officer
of 21st Century Expo Group, located in Prince George’s County,
Maryland. I am here today not only representing myself but also
my business partners, who happen to be my mom and dad, who are
here with me today, but also my employees, my community of
Prince George’s County, and other small business owners around
the country.
My parents started our family business, 21st Century Expo
Group, 30 years ago, in their basement, when I was only 4-years-
old. Today we are the only Black- and women-owned trade show
management firm in the entire country.
We began 2020 with 10 employees and plans to expand, but as
we lost the ability to generate event revenue in February, and all
of our contracts were canceled, we were unfortunately forced to fur-
lough those employees. Over the last 30 years, 21st Century has
weathered the impacts of both the 9/11 terrorist attacks and the
2008 financial crisis, but 2020 was the first year in our entire his-
tory that we had to close our doors completely and lay off staff.
Thankfully for our business, and five million others around the
country, the Federal Government acted quickly to pass the CARES
Act in March, and stood up the Paycheck Protection Program, and
it also expanded the use cases of the Economic Injury Disaster
Loan. At 21st Century Expo Group we were fortunate, fortunate to
have a strong relationship with our bank, fortunate to have up-to-
date financial records, and fortunate to quickly receive both PPP
and EIDL funds, funds that allowed us to stay afloat during the
first half of this year, when our revenue declined by a staggering
85 percent.
PPP funds went toward bringing back five employees, rent on
our warehouse, and providing health benefits for employees, while
our EIDL funds went toward expenses like overhead costs, vendor
payments, and our internet bills.
The bill’s funds only lasted until October, and we knew we had
to explore new opportunities. So we did what any entrepreneur
does. We took stock of the assets we had and the needs we could
meet and looked to chart a new path forward. My mom and I
looked around Prince George’s County and saw kids, schools,
teams, and trainers who were facing unprecedented challenges and
hardships, and then we looked at our 40,000-square-foot warehouse
and saw an opportunity to give back while giving our business new
life.
Thanks in part to our EIDL funds, we transitioned our ware-
house into an academic and athletic training center. Not only are
we helping the kids of PG County, we are providing coaches and
tutors a much-needed place to generate income for themselves. We
have been able to hire new administrative staff, bring back ware-
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20
house managers, and employ other small businesses to help clean
and manage our warehouse.
The government funds we received not only ensured our trade
show company will continue and to be here when our industry re-
turns but it will also help us create a second enterprise that pro-
vides employment in our community and needed services.
But we are not in the clear. We have gone to great lengths to
keep our business solvent. We have laid off our staff, we have cut
employee benefits, foregone paying ourselves, and dipped into per-
sonal savings to cover business expenses.
And we are obviously not alone. I am a proud member of Gold-
man Sachs’ 10,000 Small Business Voices Program, and a Novem-
ber survey of this community showed that 42 percent have been
forced to lay off employees or cut employee compensation; 52 per-
cent have foregone paying themselves; 33 percent have dipped into
their own personal savings, and these statistics are even more
bleak for businesses with Black owners.
I am one small business and one voice, but I speak to the chal-
lenges faced by many. Millions of small people throughout the
country need more help to survive. They need your help to survive.
If I could ask for three things. First, we need additional PPP and
EIDL funds. Second, we need to ensure that PPP loans do not have
negative tax implications for small business owners. And third,
commercial rent deferrals and other rent assistance would be in-
valuable for event businesses like mine, where facility rental alone
is a major overhead cost.
I recognize that the response to this pandemic must first be, first
and foremost, about protecting lives, but it must also focus on pro-
tecting livelihoods, including those of our Nation’s most vital small
businesses. Thank you.
[The prepared statement of Ms. McFarland follows:]
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Chairman RUBIO. Thank you so much. Ms. Williams.
STATEMENT OF DAFINA WILLIAMS, SENIOR VICE PRESIDENT,
PUBLIC POLICY, OPPORTUNITY FINANCE NETWORK, WASH-
INGTON, DC
Ms. WILLIAMS. Good morning, Chairman Rubio, Ranking Mem-
ber Cardin, and members of the Committee. I am pleased to testify
today about why community development financial institutions,
CDFIs, must be central to the Federal Government’s strategy for
reaching very small and minority-owned businesses. These busi-
nesses cannot afford for CDFIs to be an afterthought and public
policies addressing the economic crisis brought on by COVID–19.
The Paycheck Protection Program experience demonstrated that
when CDFIs are empowered with supportive policies and adequate
capital, they outperform other lenders. PPP has been a critical life-
line to save businesses and jobs. Opportunity Finance Network
supports an extension of this program.
Through the initial iteration of PPP, business owners, lenders,
and policymakers also learned some lessons. Who your lender is
matters. There are gaps in our financial system that lock people
out. Too many of our minority- owned, women-owned, and rural
businesses are unbanked and underbanked. If we want Federal re-
lief to reach these small businesses, we must reach the lenders who
understand and are working in these markets, CDFIs. As special-
ized lenders that focus on underbanked communities, CDFIs are
uniquely poised to deliver Federal relief to underestimated busi-
nesses. We reach communities that other lenders do not. Our bor-
rowers are 85 percent low income, 58 percent people of color, 48
percent women, and 26 percent rural.
Thankfully, there has been bipartisan recognition that leaving
CDFIs out of PPP meant many CDFI customers were left out too.
OFN has greatly appreciated ongoing efforts from this Committee,
Congress, SBA, and Treasury to modify the program as challenges
arise, and these changes, including the $30 billion carveout for
community financial institutions in Round 2, and the $10 billion
CDFI set-aside, plus dedicated access to SBA’s platform for small
lenders were effective.
CDFIs made more than 114,000 PPP loans, totaling more than
$7.5 billion. Our average loan size was about $65,000. For example,
Latino Economic Development Center participated in the second
round of PPP and deployed 109 loans totaling more than $2.2 mil-
lion to businesses in D.C., Maryland, Virginia, and Puerto Rico.
Their average loan size was about $20,000.
Orlando, Florida-based BBIF made 200 PPP loans totaling more
than $7 million, that retained more than 1,300 jobs. The average
loan size was about $36,000, and 86 percent of their PPP loans
went to ethnic minorities, including 67 percent to Black business
owners.
And there are stories like this from CDFIs across the country,
demonstrating that these small loans are critical to saving thou-
sands of jobs.
As CDFIs, our priority is one that I know is shared with the
members of this Committee, that PPP must help our Main Street
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25
businesses that are the backbones of our communities survive this
pandemic.
OFN is pleased to see Congress poised to include another round
of PPP funding in the COVID relief bill. In the next round, we
would like to see another set-aside for mission lenders, streamlined
forgiveness for loans of $150,000 or less, a minimum processing fee
so that small loans are able to have their costs covered for lenders,
addressing the issues of tax treatment and the deduction of EIDL
advances that are stressing borrowers.
For example, Universal Logistics, a women- and minority-owned
trucking company, based in Glen Burnie, Maryland, received a
$20,000 PPP loan from LEDC. However, because of the deduction
of the EIDL advance from her PPP forgiveness, she now has an un-
expected $9,000 loan to repay. Other CDFI clients that expected
fully forgiven loans are facing that same reality.
We are pleased to see many of these fixes in the framework for
the HEROS Small Business Lifeline Act and the bipartisan Emer-
gency COVID Relief Framework. With these fixes in place, CDFIs
stand ready to make a new round of PPP loans and deliver other
Federal relief to small businesses. But we need capital and capacity
to meet borrower needs. CDFIs need a new infusion of equity cap-
ital, and we were pleased to see a bipartisan framework for the
COVID relief package include $12 billion for CDFIs, including $2
billion for rapid response grants in the industry.
This institutional-level capital will enhance our capacity to sup-
port our most vulnerable businesses and communities, both as part
of PPP but beyond into the recovery. Focusing on reaching
unbanked and underbanked businesses through the mission lend-
ers that are best equipped to serve them will ensure a more equi-
table recovery.
Thank you for the opportunity to testify today, and I look for-
ward to your questions.
[The prepared statement of Ms. Williams follows:]
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Chairman RUBIO. Thank you. And finally, Mr. Zernick.
Mr. Zernick, make sure your audio is turned on, please.
STATEMENT OF THOMAS G. ZERNICK, PRESIDENT OF SBA
LENDING, FIRST HOME BANK, ST. PETERSBURG, FL
Mr. ZERNICK. Thank you, Mr. Chairman. Tens of thousands of
small businesses have permanently closed due to COVID–19, and
more are closing each day. In the Tampa Bay area, 22 percent of
small businesses operational in January are now gone, and nation-
wide, 25 percent of small businesses have been shuttered. Sur-
viving businesses have lost 21 percent of revenues, on average. So,
by definition, small businesses have been adversely affected by
COVID–19.
The PPP, which provided two and a half months of payroll and
modest operating expenses was a lifesaver for many small busi-
nesses. But that was nine months ago, and the pandemic is far
from over. PPP Round 1 has proven not to be enough.
As Congress deliberates the next relief package, I would like to
offer three recommendations. First, we need no-cost fixes to help
borrowers and lenders through the first round of PPP and ensure
participation in a second round. The CARES Act had to be drafted
and implemented at warp speed, but with lessons learned we need
to address the issues we have lived through so PPP can work bet-
ter. Specifically, Congress should simplify the Round 1 forgiveness
process to create an appetite for Round 2.
Repeal the requirement to deduct EIDL advances from the for-
giveness amount so borrowers are not left with unanticipated debt
and lenders are not left with thousands of loans of $10,000 or less.
Strengthen lender hold-harmless provisions to clarify lenders’ li-
ability.
Allow reapplications for loans inadvertently repaid or canceled,
and provide a reinstatement process to adjust loan size if there was
an error, and broaden the eligible use of proceeds.
These are just some, not all, of the no-cost fixes we need. Individ-
ually, these fixes may seem small, but together they would make
the program substantially more palatable. And while you consider
these fixes, please remember, lenders are slogging through 5.2 mil-
lion forgiveness applications without clear guidance, and given the
onerous process, borrowers are concerned they will face unexpected
debt they cannot afford. Unless Congress addresses these imple-
mentation issues, there will be many lenders unwilling to partici-
pate in a Round 2. Failing to make reasonable program changes
would be a tragedy.
Next, we need long-term small business recovery initiatives im-
mediately. PPP provided emergency short-term relief for America’s
workers, not long-term recovery for the small businesses. While
PPP is the most innovative approach to supplementing unemploy-
ment insurance this country has seen, it does not assure that small
business will survive these difficult times.
A serious recovery package needs to support the small itself.
Small businesses need long-term working capital available through
the 7(a) program. During the Great Recession, I experienced the
benefits of an increased SBA guarantee, borrower and lender fee
waivers, and an increased authorization cap. These provisions,
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among others, would once again increase the flow of capital to
small businesses. Without 7(a) program enhancements, the millions
of employees we worked so hard to keep on payroll, using PPP,
may not have an employer to go back to.
Finally, Congress needs to use existing funding to extend the
hugely successful Section 1112 payments. Now that most of the 6-
months of these payments are ending, banks like mine are being
inundated with payment deferral requests. This should not be a
surprise. Economic conditions for most borrowers have not im-
proved since March. Borrowers in the traditional SBA programs
must pass needs-based tests to be eligible for SBA loans, so by defi-
nition, borrowers receiving Section 1112 payments are among the
most vulnerable small businesses in the country and exactly the
entities we should be helping.
Congress must include Section 1112 payment extensions and
other related technical fixes immediately, including making the
payments non-taxable. Otherwise, I fear that we will see more bor-
rower loan defaults, as they struggle to make payments. This will
cause significant stress on the SBA portfolios, rather than taking
advantage of the already-funded Section 1112 preventative relief.
In closing, my experience tells me that the best path forward for
the next relief package is one that does not merely rely on a second
round of PPP, but rather includes the full range of my comprehen-
sive recommendations. I am encouraged by the proposals that take
this holistic approach and include 7(a) enhancements and Section
1112 extensions for long-term recovery alongside PPP for short-
term emergency relief.
Thanks for this opportunity to share my thoughts. I look forward
to your questions.
[The prepared statement of Zernick follows:]
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Chairman RUBIO. Thank you all, and let me start with Mr.
Holtz-Eakin. I am going to ask you, in your testimony you note the
function that PPP served as an emergency injection of liquidity into
small businesses. What role do you think that that played overall
in the U.S. economy in April, and the numbers I just cited earlier?
Mr. HOLTZ-EAKIN. Mr. Chairman, it was a crucial support for the
U.S. economy. Between the middle of March and the month of
April we lost 22 million jobs in the United States, and the
downdraft was severe and it was enormously quick. The PPP put
$500 billion out into the small business sector during four weeks
of that period. And we saw employment rebound in May in a way
that we had not anticipated, and I think that the PPP was crucial
for that occurrence.
And so I think it should be judged as nothing but a success,
given the circumstances in which it was introduced.
Chairman RUBIO. Ms. McFarland, you pointed out that one of the
things that helped you with PPP and EIDL is you had a prior rela-
tionship with your lender, your bank, and up-to-date financials,
and so forth. So I am leading toward the question, which is, in your
opinion what is the biggest barrier for women- and minority-owned
small businesses when they are applying for programs like this?
We have heard it is the technical aspects of the application, in
some cases awareness that it exists, and others.
One of the studies that just came out yesterday talked about how
while the distribution to distressed areas was generally in line with
their percentage there are some urban area in the country that we
had evidence of some failure, and one begins to wonder whether it
is the lack of banking or lending infrastructure relationship in that
area, or the lack of access to technical assistance for applications
and so forth.
So I am kind of supposing, leaning. I do not know what your an-
swer is going to be but I am curious what your view is on what,
beyond your own business, what do you think is the biggest barrier
for others that are similarly situated in accessing these programs?
Ms. MCFARLAND. Sure. Thank you for the question. I completely
with——
Chairman RUBIO. Is your microphone on, just so they can hear
you? There you go.
Ms. MCFARLAND. Can you hear me?
Chairman RUBIO. Yes.
Ms. MCFARLAND. I completely agree with you, Chairman. I think
one of the biggest barriers is finding an appropriate bank in the
community of that business, to help them navigate the intricacies
of these loan applications programs. We were fortunate enough to
have an amazing partner. We had been with our bank for over two
years, but I do know that that is not the case for most small busi-
nesses, and we do not take that for granted.
Additionally, M&T Bank was in communication with us on al-
most a daily basis, either via phone calls or emails, and so I know,
you know, we felt at ease navigating through the application proc-
ess we had a bank like that. And I understand that most compa-
nies did not have access to that, which is a big barrier when apply-
ing.
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Chairman RUBIO. Which leads me then to Ms. Williams, to talk
about the importance of CDFIs and so forth. Obviously it is clear
that you are supportive of a second round, as I think most mem-
bers of the Committee are setting aside for the community lenders
to further alleviate some of these disparities.
I am curious, and perhaps if you have any recollection of this or
can contribute to it, at one point during the second round the SBA
made the decision that over, I believe it was a 24-hour or 12-hour
period of time, beginning at like 7 p.m. in the evening until 6 a.m.
the following morning, the only lenders who could access the sys-
tem, meaning send in applications, were lenders under a certain
size or standard.
And their rationale was because the larger lenders had already
loaded up all the application formats and they were just pressing
Send, and it was overloading the system. So by clearing that out,
by stopping that from happening, it created online capacity to proc-
ess. In essence, it created an express lane over a sustained period
of time, a few hours, for the non-large lenders to get their applica-
tions in. And my understanding is that that was a very smart—
I am not sure it is something we need to legislate but it sounded
like something that worked.
Do you remember that happening, and apart from the dollars
set-aside, a time set-aside, the mechanics of actually pushing
through the application online and so forth became a real problem
for the system they had set up online. Do you recall that part, and
if not, even if you do not, I mean, is that something that you think
would make sense in terms of helping CDFIs and others get their
applications in?
Ms. WILLIAMS. Yes, that dedicated access for small lenders was
incredibly effective. CDFIs and their borrowers needed a little bit
more time to be able to appropriately prepare their applications.
They do not always have access to accountants or tax professionals
to be able to prepare the application immediately. And so that first-
come, first-served model really disadvantaged some of these busi-
ness owners that needed more time to prepare.
On the lender side, when you are a smaller lender, which might
not have had an existing relationship with SBA and real knowledge
of how to access and leverage the E-Tran system, there was a proc-
ess where you had to sort of understand how to get your loans
through and access the system. And so that dedicated window real-
ly opened up some space for small lenders to be able to get their
borrowers’ applications through the system without having to com-
pete with Federal resource lenders during that time period.
Chairman RUBIO. And again, I am not sure that is something we
need to put in a bill per se, but it was certainly a process that I
know helped clear up the backlog, and I am hoping that we can fig-
ure out a way to make sure that happens again.
Finally, Mr. Zernick, I am just curious. I mean, this would not
have worked without the community banks and the nontraditional
lenders, and so it just would not have, from a capacity standpoint.
There is no way we could have done this with just the larger, major
banks. We could not have done it without them, but we certainly
could not have done it only with them. I can tell you that without
regional and community banks and nontraditional lenders there is
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no way we would have reached the breadth and scope of small
businesses that we did.
So we are concerned about anything in a second round of assist-
ance that would prevent banks from participating. In your view,
what issues, what requirements, what prescriptions, what could
prevent banks from participating in a second round of PPP?
Mr. ZERNICK. Thank you, Chairman Rubio. Obviously we need to
fix the forgiveness process for the Round 1 of PPP. We have had
numerous, burdensome hurdles to go through with our clients re-
garding how to calculate the covered period, how to calculate the
FTE calculation required. There are three separate applications.
They all come with separate instructions. We simply need, in addi-
tion to more PPP, we need to fix the forgiveness process in
Round 1.
We do not need a blanket waiver. We simply need a streamlined
process for forgiveness so that banks like ours, that have 9,000
loans to process forgiveness on, can focus on a next round of PPP
under Round 2.
So lenders need, right now we do not need to calculate the for-
giveness amount. We should not need to justify that the documents
provided by the borrowers support the forgiveness amount. We sim-
ply should validate the documents have been uploaded and that the
application is complete and ready to submit to the SBA. These are
the things we could do in the forgiveness piece of Round 1 that
would free up our teams to be able to process Round 2 in PPP.
Chairman RUBIO. Thank you. Senator Cardin.
Senator CARDIN. Let me thank all four of our witnesses. I think
this has been extremely helpful, giving us specific recommenda-
tions on how to improve these programs and what is needed.
From the testimony of Ms. McFarland, Ms. Williams, and Mr.
Zernick, it is obviously that you support PPP, another round, but
you believe we need to do more, that it has got to be more com-
prehensive, we have got to deal with EIDL, we have got to deal
with improvements in the current programs, and Mr. Zernick, you
mentioned the 7(a) programs and other programs, the fee waivers,
things like that, that are critically important for us to deal with.
So I appreciate that.
I want to first go, if I could, to Ms. McFarland. It seems to me
what you are telling us is that PPP was a lifesaver for you initially,
but you also needed the EIDL help in order to pay for those ex-
penses that were not covered by PPP. Otherwise, you may never
have reached that point where you are today, where you have been
able to adjust, to try to keep your business afloat as the economy
is rebounding. Am I correct that you needed both PPP and EIDL
in order to get through the initial period?
Ms. MCFARLAND. Yes, absolutely. Like I said before, we had to
furlough all of our employees, all 10, and the PPP allowed us to
hire five employees back. We did extend two return offers to two
of our employees, but they decided to utilize the unemployment
benefits and they also were living with at-risk family members.
And the other three employees that we were not able to extend re-
turn offers to were project managers, and because we had not seen
a project since February it was not feasible for us to bring them
back.
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However, the warehouse staff that we were able to bring back al-
lowed us to win a sizable PPE distribution contract in April, where-
by we were housing and distributing over a million pieces of PPE
to over 100 community health centers.
So having our employees back was amazing, and then we sat
down and we were trying to determine what we could do to gen-
erate revenue, and we still knew that we needed additional capital.
So the EIDL loan went to our overhead and our working capital
and utilities, like our internet bill. And because those funds were
freed, we then were able to utilize those funds to transition our fa-
cilities into an athletic and academic training center.
Senator CARDIN. Thank you. Ms. Williams, one of your rec-
ommendations—so we are trying to figure out how is the best way
to get resources into the underbanked or underserved minority
communities—and one of your recommendations is that there
should not be an offset from what is forgiven by the EIDL advance
of funds that were received. Currently they offset the loan forgive-
ness by the amount of the EIDL advance. Am I correct that you
believe there should not be an offset, that that is just creating an
additional burden on small businesses, and they need help?
Ms. WILLIAMS. That is correct. We have heard from our CDFI
lenders that borrowers were essentially unaware of this provision
when they sought out their PPP loans, and as they start to seek
out, you know, apply for forgiveness, it is coming as quite a shock
that when they thought they were receiving both an EIDL grant
that they would not have to pay back and a PPP loan that was
fully forgivable, that now they are actually faced with a loan pay-
ment that they were not anticipating.
And then, on the lender side, I think they are also faced with
having to hold and service a loan that they also did not anticipate,
that they expected was going to be able to be forgiven and would
not have to remain on their books. So it is creating challenges for
both borrowers and lenders.
Senator CARDIN. As we talk to some of the lenders, it is just a
natural bias to try to get larger loans rather than smaller loans,
because of the processing costs, et cetera, it just makes sense. One
of your observations was the processing fee on the smaller loans.
If a small business, if a very small business has to rely upon a com-
mercial loan as part of the PPP program in order to get access to
the help, if the processing fee does not match the cost of the lender
it is going to be much more challenging to get that type of activity,
particularly again in underbanked communities.
Am I reading that recommendation that you think the processing
thing has to match the cost here and not be capped at an amount
that may be reasonable, percentagewise, for a larger loan but not
for a smaller loan?
Ms. WILLIAMS. That is correct. For small loans lenders are find-
ing that the cost that they are incurring, both on the front end for
preparing and processing the applications is very staff- and re-
source-intensive work, especially when you are dealing with the
populations that CDFIs tend to need additional support in pre-
paring documentation and getting those loans ready.
And on the forgiveness end, there also is an unforeseen and addi-
tional cost that lenders are encountering that together are making
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it so that some lenders are actually losing money on making these
smaller-dollar PPP loans. And for CDFIs that really want to be
able to provide these resources to their communities, you know,
this is a really challenging position to be in because they cannot
actually cover the full cost of being able to provide those loans. So
a flat fee that is reasonable, that really will allow lenders to be
able to realize the full cost of making those small-dollar loans will
actually encourage that small-dollar lending from more lenders.
Senator CARDIN. And I really appreciate the role that CDFIs play
and thank you for your leadership on that. And I want to acknowl-
edge, we have had bipartisan support in empowering CDFIs in this
process. I want to thank Senator Rubio for his help. Obviously,
Senator Warner has been one of the real champions on this and
has been leading the fight in regards to the capital issue that you
are referring to. And we certainly had cooperation from Secretary
Mnuchin as we tried to deal with these issues.
I just really wanted to put that on the table because I think we
recognized that needed to be done. And we were disappointed that
the SBA did not follow our initial request to develop ways that we
made sure that minority and underserved communities were
served.
Mr. Zernick, one point. Your suggestions in regards to the 7(a)
program, because I agree with you on this. If I understand, you be-
lieve we need to improve the current tools that are available. 7(a)
loans are vitally important. It is the largest program we have
under the SBA prior to the PPP program. And you are suggesting
that the fee waivers and other issues that were involved in that
should be part of this process, to make sure that we respond prop-
erly for COVID–19?
Mr. ZERNICK. Absolutely, Senator Cardin. I really think we need
to create a business vaccine. We are doing it now to save humans.
We need a business vaccine that will save our business commu-
nities, and that vaccine needs to be a cocktail that is made up of
another round of PPP, plus our no-cost fixes. It has to include a
long-term working capital solution by using the 7(a) enhancements
of an increased SBA guarantee.
We need help lending into this pandemic through the 7(a) pro-
gram, we need the fee waivers for our clients, and we need an in-
creased authorization cap. We need to be able to prepare to help
businesses launch and relaunch and restart their businesses going
forward.
And lastly, the 4,200 SBA clients at First Home Bank need Sen-
ator Coons’ 1112 payment extension. It was a tremendous help,
and thank you, Senator Coons. But now it is time for more of this.
Our businesses often cannot make their payments. We are inun-
dated with deferral requests. Delinquencies are increasing. We
need to protect our portfolio and our small business community,
and that business vaccine, while it includes Chairman Rubio’s PPP
program with the no-cost fixes, we need that 7(a) enhancement and
we need Senator Coons’ 1112 payment extensions. Thank you, Sen-
ator Cardin.
Senator CARDIN. Thank you. I will point out, I strongly agree
with you on Senator Coons’ proposals. There is actually money that
remained in that program, enough to cover moving forward. So it
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is just a matter of repurposing the money that was already in that
program.
Thank you, Mr. Chairman.
Chairman RUBIO. Thank you. Senator Risch.
Senator RISCH. Thank you, Mr. Chairman. First of all, I want to
join the others in kudos to you for having led this fight. It was tre-
mendously successful. The other important thing that America does
not know, and probably never will know because it does not get re-
ported, is this was a bipartisan effort, a for real, honest-to-goodness
bipartisan effort. The Chairman deserves much credit for that,
being able to bring the two sides together.
We get lots and lots of stories about arguing and fighting up here
and not being able to get anything done, and PPP was certainly a
great exception to that. And I also want to thank the Chairman for
allowing all of us to have input into this. We all had our finger-
prints on this, to some degree, though it certainly was your effort
and deserves your name on it.
For people like myself who do not necessarily worship at the
altar of government solutions to problems, I have to tell you I was
astonished, first of all, by the fact that this program came together
as quickly and as well as it did, and then I was even more aston-
ished that it actually worked out in the field.
If it had not been so ugly it would be amusing the way the media
ran around the country looking for failures in this program, and
hence they found them, and as you said, Mr. Chairman, it is not
perfect. There is no government program that is perfect and there
are certainly things that could be done better, and under situations
the government just cannot fix. The media was very skillful in
going around and writing or putting on stories on TV and the
media about this. Those of us who have worked this know that this
was a tremendous success.
I think, too, another person that deserves real kudos here, and
I think when they write the history of this thing he will get his
own chapter in the book, and that is Secretary of the Treasury
Mnuchin. I have to tell you, I was absolutely amazed. We wound
up with glitches starting right away, as you do with any program,
and every time we did we would call over to Treasury and talk to
Steve Mnuchin, not to a bureaucrat, not to an assistant, but we
talked to the Secretary of Treasury. They were not necessarily big
things, but he paid very close attention to them, and at the conclu-
sion he, unlike what you usually get in dealing with an agency,
said, ‘‘Well, you know, I think we can fix that.’’ And he went to
work in good faith and resolved virtually every problem I was asso-
ciated with, and I have to think that every Member of Congress
had similar kind of a situation.
Mr. Zernick, you will be interested to hear that—you spoke quite
a bit about the forgiveness program. To me, the forgiveness pro-
gram was the poster child for the good work that Secretary
Mnuchin did, by the time we got to him to complain about it, and
it became obvious very soon that we had left way, way, way too
much up to the bureaucrats to design a program for forgiveness.
The first thing we saw was about a one-inch sheet of papers with
questions on it for the forgiveness. By the time we got to Mnuchin,
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he was already on the third iteration of that, having given direc-
tions to the bureaucrats to change that.
So we continue to work on that. I think your suggestions are well
taken. We understand it is on both sides, not only on the lender
but on the borrower, and that is getting better, I can tell you.
Look, this has been a real success. I never thought I would be
able to sit here and look at how well this has actually operated out
in the field. I think everyone is in agreement, again on a bipartisan
basis, we need another round of this. I am sure that everybody on
the Committee has the same view of this that I do, and we just
shake our head as leadership and the body as a whole goes through
these machinations in trying to get to another COVID bill, when
we are in agreement on this.
I mean, if we threw this bill out on the floor it would get unani-
mous support on both sides of the aisle and in both houses, and yet
we cannot move because we have these other moving parts. There
are about 18 or 20 moving parts in here, and just because we have
disagreement on some of them it is disturbing and disheartening
that we cannot move this forward when we are all in agreement
on it.
In any event, hope springs eternal, and we will proceed with
that.
I want to ask one question before I yield the floor here, and that
is I think, from all the testimony we have heard today, and what
we have heard over the period of time, is that EIDL has not
worked nearly as well as PPP has, and so we are interested in see-
ing, in the next round, that we do better with EIDL. There are a
number of things that need to be addressed.
One of the interesting questions I have is the situation, the fact
where people have borrowed both from PPP and taken money from
EIDL, both of them. Can somebody give me an idea of how wide-
spread this is? What percent of borrowers, or applicants, applied to
both EIDL and PPP and received funds from both? Can anybody
give me an answer on that?
Chairman RUBIO. I am sure from the staff level we could find
that answer from the SBA if we do not have it handy.
Senator RISCH. How about a general sense? Can anybody tell me,
is that widespread or is that a narrow lane of people that are
caught up in that? I understand the problem. I just want to know
how wide the problem is.
Chairman RUBIO. That applied for both.
Senator RISCH. It was not rare.
Chairman RUBIO. I am not sure we have the exact percentage
but it certainly was not—I mean, I think—and maybe one of our
two lenders that have been involved in the program can tell us how
common it was for them to see people that were in both camps, but
without giving us a raw number.
Senator RISCH. Can one of you—do you dare take a stab at that,
as to how widespread? Is it over half? Under half? Is it a fourth?
Is it 10 percent?
Nobody wants to run with that.
Mr. ZERNICK. Senator, this is Tom Zernick. I can tell you that as
we process forgiveness today we are probably seeing 10 to 20 per-
cent of the forgiveness applications including an EIDL advance. So
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it is less than 50 percent, but again, those are all advances that
are now going to be booked on our balance sheet as loans that
these borrowers have to pay back, that they thought were grants.
So again, anything we can do to get those paid off, get those for-
given, would be tremendously helpful to small businesses.
Senator RISCH. I get that, and I understand it. I guess what I
am driving at here is I am looking for a price tag, and until we
get that nailed down it is kind of hard to make a decision on that.
But I guess the first one is what percent did, and then secondly we
can maybe monetize that and see what the price tag would be to
do that.
Chairman RUBIO. Well, I am certain we can get that number
from the SBA, and we will make sure we get that. We will call
them today.
Senator RISCH. All right, thank you. Thank you, Mr. Chairman.
Senator CARDIN. Mr. Chairman, this is Ben Cardin. Could I just
respond to Senator Risch just very briefly, if I might, because I
want to make sure we get this point clarified.
To me, the major problem with the EIDL program was there was
not enough funds put into it, because in administering it they
capped the loan at $150,000, even though there was $2 million au-
thorized by Congress went into individual loans, and the grant pro-
gram was supposed to be $10,000 and they capped it at $1,000 per
employee, and it averaged between $4,000 and $5,000.
Now we have colleagues on both sides of the aisle that have ob-
jected to that type of administration, but that seemed to be the
major problem that we heard of in regards to the administration
of the EIDL program. And thank you, Mr. Chairman, for allowing
me to clarify that.
Senator RISCH. Can I respond briefly, Mr. Chairman?
Chairman RUBIO. Yes.
Senator RISCH. Ben, I hear what you are saying and I agree with
that. But it was not just underfunding. I mean, when the inspector
general went in there was considerably more fraud in the EIDL
program than there was in the PPP program, and I always hate
to say that because that becomes the headlines, instead of the suc-
cess of the program, where you have a blemish like this that you
can fix, and should fix. That is something that we should focus on.
And do not get me wrong—I do not question your assessment that
EIDL is underfunded. But there are some other issues there too
that need to be addressed.
Thank you, Mr. Chairman.
Chairman RUBIO. Thank you. Senator Shaheen.
Senator SHAHEEN. Well, thank you, Mr. Chairman. I will also
leave my mask on in the interest of all of the people who may need
to go home for the holidays.
I want to echo Senator Cardin’s comments about your leadership
on this Committee, Senator Rubio. I have very much appreciated
the creativity with which you have approached your position as
Chair and, of course, your leadership as we work to get the PPP
program done, and I was very honored to be part of that group, to
work with you and Senator Cardin and Senator Collins to help de-
sign that program. And hopefully we can get another round. I think
all of us agree it is critical to get that out.
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I also want to join with everyone who has talked about the suc-
cess of the PPP program and really good work, despite some of the
difficulties, that SBA did, and lenders did across the country, in
getting funding out to small businesses who needed it. It has been
a big success and hopefully we can get another round that will
allow us to make some of the corrections that we have heard people
suggest today.
I want to start with you, Mr. Holtz-Eakin, because, as a macro-
economist and somebody who recognizes that because you have
worked in the Congressional Budget Office understands the chal-
lenges in Congress. Can you talk about what you think the impact
will be if we are not able to get additional help for our small busi-
nesses and broader help in the economy in the way that we did
with the CARES package back in March? What are we going to see
if we fail to do that?
Mr. HOLTZ-EAKIN. I think we will see tremendous damage to the
labor market, the disruption of employee-employer relationships.
People then have to find new jobs, perhaps in different sectors of
the economy. That is a slow and costly process for people. So that
is the paramount concern.
It also undercuts other efforts that Congress is attempting. So
losing all those businesses is a big disruption of the supply side of
the economy. In the absence of that functioning supply side, checks
to low-income households do not stimulate the economy, additional
measures that Congress might look at on the spending side will not
stimulate the economy.
And so it is a crucial part of moving forward with the recovery.
Senator SHAHEEN. And we heard Mr. Zernick say that 25 percent
of small businesses have closed since the start of the pandemic.
Have you seen any estimates about how many additional small
businesses will close if they do not get help?
Mr. HOLTZ-EAKIN. I have not seen any such estimates, but we
know that the core problem, which is spending on services, often
provided by small businesses that involved personal contact, has
not recovered. I mean, that simply has not come back. The initial
decline cost us a quarter of small businesses. To go through an-
other surge and have a comparable pullback I think is a real dan-
ger.
Senator SHAHEEN. Thank you. Ms. McFarland, you talked about
the help that you received from the PPP loan and the EIDL both
loan and grant. Can you talk with more specificity about which as-
pect of each worked for you and how they worked together, or did
not, to address your needs?
Ms. MCFARLAND. Sure. Well, PPP and EIDL were a crucial life-
line to maintain our business functions. Without it, our doors
would simply still be closed today. The PPP allowed us to rehire
five employees. It allowed us to pay for rent. It also allowed us to
provide health care benefits to those employees, while EIDL went
towards our overhead, some working capital.
But the EIDL advance was something that we found difficult to
understand when we are now understanding that it will be de-
ducted from our loan forgiveness. But both were incredibly crucial
to the sustainability of our business, and now, because of these
funds, we are able to employ new small businesses to operate and
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clean our facilities, and we are providing a semblance of normalcy
to some of the kids in our community. We have seen 2,200 kids
come through our doors, COVID-safe, of course. But to see these
kids’ faces light up, and we would only be able to see that because
of the funds that we received from both PPP and EIDL.
Senator SHAHEEN. That is great. If I could ask one more ques-
tion, Mr. Chairman, and let me also say, in answer to Senator
Risch, we have heard from a number of businesses in New Hamp-
shire who have also been very shocked by the fact that they have
to deduct their EIDL advance from their PPP, and the hardship
that it places on them. So I think we would share the concern that
we ought to look at addressing that.
Senator RISCH. I think we all share in that information we have
gotten from our small businesses.
Senator SHAHEEN. Mr. Zernick, you have extensive experience in
SBA lending, and I wonder if you have seen the new forms that
you may have been collecting from borrowers seeking forgiveness
of their PPP loans. One of the things that we have heard from peo-
ple is about this new form that is called ‘‘Loan Necessity Question-
naire.’’ And it asks borrowers to complete, and lenders to collect re-
sponses to a detailed series of questions about PPP loans over $2
million.
Now I appreciate the need to get that information, but there is
real concern from a number of these businesses, particularly we
have heard in New Hampshire from the Joslin Diabetes Center,
from Lamprey Health, from Bi-State Primary Care Association, all
of whom are dealing with medical cases. When they submitted this
additional paperwork they are concerned about how this informa-
tion is going to be used. Have you heard those concerns as you
have met with small business people, and do you have any sense,
based on your experience, of how this information might be used?
Mr. ZERNICK. Yes. Thank you, Senator. The Loan Necessity
Questionnaire will impact 41 loans of the 9,000 loans our bank did,
so we did not do a lot of loans over $2 million. But I can guarantee
you that this was not disclosed up front, and my fear is that with
the start of this questionnaire there could be a trickle-down effect,
where SCA and others continue to investigate and do a deeper dive
into the validity and the necessity for these businesses to acquire
the PPP loan.
So while we want to help our small businesses complete that
questionnaire, again, I feel it is unnecessary outreach, and again,
it is going to send red flags across the PPP who, for legitimate rea-
sons, had larger payrolls and were truly eligible for the loans over
$2 million.
SBA has already agreed to review all the loans over $2 million.
To me, that should be sufficient oversight.
Senator SHAHEEN. Well, thank you. I share that concern, and
that is certainly what we have heard from the businesses who have
called our office.
Thank you, Mr. Chairman. I hope we can look into this and try
and get more information.
Chairman RUBIO. Thank you. Okay. Is Senator Scott on the web?
He is not? Okay. Senator Cantwell.
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Senator CANTWELL. Thank you, Mr. Chairman, and sorry, we are
also having a hearing in Transportation and Commerce on how to
get the vaccine distributed, so I am running back and forth, two
very, very, very important hearings. I hope everybody is absorbing
all this information because we have so much work to do.
Chairman RUBIO. I would argue interrelated, right?
Senator CANTWELL. Very interrelated. In fact, I think I will just
start with that.
I do want to ask about broadcast and the newspapers, but, Mr.
Holtz-Eakin, you have mentioned this issue of municipality liquid-
ity program and why did they turn back the money, because we
could be using it. I am hearing from my cities and counties and dis-
tricts. We just talked to the major distributors downstairs, with
FedEx and UPS, and they are like, ‘‘Yeah, we are going to get it
there,’’ but I am like, ‘‘Well, what happens once it gets there? You
still have to have an operation on the ground to distribute the vac-
cine, and you will have some hard-to-serve communities, like in my
case Indian country, which is very big and vast. Who is going to
be there to distribute the vaccine?’’
So don’t we need to be using those municipal dollars to help our
cities and counties and public health people get the distribution
system? I do not want to see another Puerto Rico, where we get it
to the docks but we cannot get it to the location.
And then, Ms. Williams, I wanted to ask you, you know, we have
been working hard on this broadcast and newspaper, because
broadcasters lost 40 percent of their advertising revenue before
2018, and then they lost another 40 percent of their advertising
revenue due to COVID. We issued a report showing how essential
it is for public health information that we have broadcasters and
newspapers to do that, so we definitely support a PPP program
that helps treat those organizations. Just because you are an affil-
iate does not mean you have got a big boss that is helping you with
lots of money. Talk to any affiliate and they will tell you, they are
usually getting screwed over by the entity, controlled, the profits
ripped out. All sorts of things are happening. Being an affiliate is
not such a great thing for the affiliate.
So this means that African American radio stations that are part
of Urban One, like Baltimore, and Spanish-speaking stations like
Playa 98.1 in Fort Myers, they do not get relief. And, to me, we
should be allowing for the distribution of information, particularly
during this crisis.
We had Mr. Busby, the president of the U.S. Black Chamber,
here, Black-owned newspapers and radio stations, who basically
said, ‘‘Yeah, we need this help, because we are the source for trust
in a community.’’ So we want to see relief. Just because people are
part of a larger ownership does not mean we cannot direct help to
the individual affiliates. So if we could address those two issues I
would be so appreciative. Thank you. Mr. Eakin?
Mr. HOLTZ-EAKIN. So the design of the PPP was essentially a de-
cision to provide grants to small businesses in the form of these
forgivable loans, and so the question in helping municipalities and
larger businesses really was, do you want to continue with a grant
formulation or do you want to move to a lending solution? The deci-
sion was made to have these facilities be lending facilities, the Mu-
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nicipal Liquidity Facility and the Main Street Lending Program.
Neither was particularly successful.
The economic equivalent of a grant program for municipalities,
particularly in distribution of the COVID–19 vaccines, is to go back
to a grant program and do it through appropriations. And given the
importance of this to the health of the Nation and the functioning
of the economy, I do not think there should be any hesitation in
doing that by Congress.
Senator SHAHEEN. Thank you. Thank you.
Ms. Williams, about the affiliates and helping—look, we did a re-
port in the Commerce Committee on the minority side, but basi-
cally local news is the most trusted news source, and in these com-
munities where you have, again, diversity, they are also the most
trusted news source. So how do we get them help?
Ms. WILLIAMS. Thank you, Senator Cantwell. I 100 percent agree
that local radio and newspapers are key in reaching minority busi-
nesses. They are, as you said, trusted and reliable sources of infor-
mation. And CDFIs actually use them to reach their potential cli-
ents, and they can provide, you know, culturally and language-com-
petent information. They are also really helpful for small CDFIs
with limiting marketing budgets to be able to reach these potential
clients.
So we agree that they are critical to the flow of information, to
making sure that small business owners are aware of the resources
that are available to them.
Senator SHAHEEN. So I am going to take a wild one here. People
say never ask a witness a question you do not know what they are
going to say, but Mr. Holtz-Eakin, I am going to double down on
you today.
This is my point. The press is helping us get perfect information.
The competition of the press helps us get perfect information. Mar-
kets need perfect information. So do we not have to figure out how
we are going to save a broader news information source in competi-
tion? Do we not need to do something as we are sorting out these
legal issues on antitrust?
Mr. HOLTZ-EAKIN. I think the virtues of competition cannot be
overstated, and that is true in this business as well. Preserving
that competition is an enormous part of the portfolio of this Com-
mittee, because it is new entrants, smaller competitors, who, in all
industries, provide the sort of innovation and competitive impulse.
They give us better results and outcomes.
Senator SHAHEEN. Thank you. And about 75 percent of U.S. em-
ployment.
So thank you, Mr. Chairman. Thank you.
Chairman RUBIO. Thank you. Senator Coons. I thought you were
on the Web. Now you are here. Omnipresent.
Senator COONS. Would you like me to yield to my colleague from
Iowa? I am happy to. Would you like me to proceed or would you
like me to yield?
Well, thank you, Mr. Chairman. Thank you to our witnesses.
Thank you, in particular, to Senators Rubio and Cardin for having
led this Committee in such a remarkable way. As a number of our
witnesses, who have been doing a terrific job of being the voices of
small business and of the lending community, have conveyed, this
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56
is, in some ways, the underappreciated, unsung hero of pandemic
response. In a strong bipartisan way, members like Senators Sha-
heen and Cardin, Senator Collins, and Chairman Rubio have
worked tirelessly to put together and then deliver on a package
which has made an enormous difference.
There is a long road to recovery for small business and for the
employees of small businesses all over the country. I hear from
folks, literally daily. I got several texts this morning from res-
taurant owners, from folks who work at restaurants, from our
Chamber, and from folks who represent businesses large and small
in my State, asking when will Congress do another round of PPP.
And I am grateful for all who have worked on the EIDL, on the
Debt Relief Program, in particular, David Brown and my team,
who has really helped lead that. Thank you, Mr. Zernick, for recog-
nizing the way in which the SBA Debt Relief Initiative really has
made a lasting difference, and I think we should extend that.
But I just wanted to make sure that we drill down on just a few
of these issues.
Small business owners across my State, from Warren Station, a
family-owned business in Fenwick Island, almost literally the
southeast point of the State, to Eat Clean, which is a full-service,
relatively new, startup juice bar I recently visited in Wilmington,
have seen on the ground the reality of what the dramatic drop in
employment, in profitability, in opportunity has meant for small
business employees and for small business owners during the
course of this pandemic.
Ms. Williams, if I might, both I wanted to thank you for the way
that the Opportunity Finance Network has been an engaged and
effective advocate, particularly on behalf of those who make access
to credit more possible, more real through CDFIs and minority-
serving institutions. Two frequent concerns from very small busi-
ness owners related to the complexity of applying for forgiveness
and the tax consequences. I know these have been covered by other
members, but these are the sorts of issues I hear day in and day
out. Tell me about the importance of these concerns for the bor-
rowers that Opportunity Finance members serve, and what you
have heard so far today in this hearing about how we can address
this, and quickly, in the bills that have been proposed recently.
Ms. WILLIAMS. Thank you, Senator Coons. We have heard exten-
sively about how borrowers are concerned about the complexity as-
sociated with applying for forgiveness, and for lenders, quite frank-
ly, who are continually getting new guidance coming from SBA and
Treasury. The rules are changing. And there has been a little bit
of hesitation, I think on the part of some CDFIs to start moving
forward with their borrowers into the forgiveness process, because
there is an anticipation that the rules could still change and Con-
gress might make a bunch of additional changes in another stim-
ulus bill.
So I think that uncertainty is creating a lot of hesitation, and I
think it also may impacted demand from small businesses, quite
frankly, going forward, if they cannot understand exactly how their
loans are going to be forgiven if they are facing a lot of unforeseen
and unanticipated costs associated with their PPP loans that they
did not expect to have. That is going to discourage borrowers who
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maybe sat out the first round, or couldn’t get access, from trying
to access PPP and also for borrowers who might be looking into a
second draw.
The tax implications are also of great concern to some of the bor-
rowers that are CDFIs are encountering, and I think that it is cru-
cial that in the next relief bill that Congress address these issues
in order to make sure that both lenders and borrowers understand
the full implications and costs associated with the program and are
able to enter into these PPP loans with that full understanding.
Senator COONS. And Ms. Williams, how can we best grow the ca-
pacity of the CDFI industry and the number of CDFIs able and
available to meet the needs of underserved communities and
underbanked communities?
Ms. WILLIAMS. The most important thing that Congress can do
is strengthen the institutions and lenders that are already working
in our most underserved communities, and Congress can do that by
immediately providing direct appropriations for the CDFI fund for
rapid response grants. They provide critical equity capital that
CDFIs then use to leverage low-cost debt from our bank and pri-
vate sector partners, and this allows us to not only be able to make
PPP loans but also to provide additional products that borrowers
need, like working capital, but also providing things like loan for-
bearance and deferrals or other emergency relief programs to help
borrowers really meet their needs.
And, quite frankly, you know, there are 1,100 certified CDFIs
working in urban, rural, and native communities across the coun-
try. We are ready to deliver this capital. We have the expertise. We
are in communities. We are on the ground. We know how to mobi-
lize. And so deploying those rapid response grants to the CDFI
community is a way to make sure that these Federal resources are
able to reach our most vulnerable businesses quickly and effec-
tively.
Senator COONS. I am excited about the bill that is right before
us, that has been proposed by a bipartisan working group, that
would deliver at least $300 billion in aid. There has long been bi-
partisan support for a prioritized PPP or a P4, to serve the hard-
est-hit small employers with carveouts for small and underserved
communities. It has also got some significant provisions about
small business grants, addressing some of the expensing and tax
liabilities, some of the overlap between EIDL and PPP that has
been addressed.
But I also want to—I hope we have time in future hearings to
talk about the ways in which we ensure an equitable recovery
going forward. Senator Scott and I just introduced the Next Gen-
eration Entrepreneur Corps Act, which would create a fellowship
program with a stipend and mentorship and access to capital, to
hundreds of new entrepreneurs.
The relief bill that is in front of us is the one I know my folks
in Delaware want to see us move, so let’s not miss this opportunity
to make a lasting difference for the communities in need all over
our country. But we also need to look forward to how we make this
an equitable recovery.
Thank you very much, Mr. Chairman, for your leadership of this
Committee, and thank you to the witnesses today.
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Chairman RUBIO. Thank you. Senator Ernst?
Senator ERNST. Yes. Thank you, Mr. Chairman, and thank you,
as well, to all of our witnesses that are appearing here in person
as well as virtually. And we all understand the last nine months
have been. It has been an extraordinarily difficult time for our
small businesses all across the United States. But through all of
this, one of the few bright spots has been the Paycheck Protection
Program, which, of course, we refer to as PPP. It has allowed busi-
nesses to keep their employees and survive the shutdowns and the
economic slowdown.
In my home state of Iowa, the PPP provided over 61,000 small
businesses in loans totaling over $5.1 billion of relief, and it did
save hundreds of thousands of jobs. And while the PPP, which was
created through bipartisan efforts on this Committee, has proven
to be widely successful, it has very clear to all of us that an addi-
tional round of assistance is needed for small businesses that con-
tinue to be impacted by COVID–19.
And just to share a story from Iowa, I did recently hear from a
movie theater owner in Iowa who has been forced to take out mul-
tiple loans against their 103-year-old founder’s life insurance policy
just to get by. And it is these folks who really, really do need the
assistance now. And that is why I am glad, Mr. Chairman, and to
this Committee, that we are taking the time to identify ways that
we can build upon PPP as we continue to work on an additional
round of COVID relief.
For the panel, I do have a couple of questions. As our businesses
do continue to feel the impact of COVID–19, it is becoming clear
that some businesses, like restaurants, will need more than a PPP
loan to survive. A recent survey found that 41 percent of Iowa res-
taurant operators say it is unlikely that their restaurant will still
be in business six months from now, and that is really heart-
breaking, I think, for so many of us.
Can you speak to the importance of immediately passing assist-
ance for industries like restaurants, movie theaters, and maybe
others, that, because of the circumstances have not been able to
open back up? Can you just briefly speak to that and maybe share
some thoughts on what might be necessary, and Mr. Holtz-Eakin,
if we could start with you, please.
Mr. HOLTZ-EAKIN. Thank you, Senator. The challenge is how to
operate the economy in the face of the virus, and there are some
industries where PPE, testing, social distancing allow you to con-
tinue to operate, but we are finding with the surge in cases that
in restaurants that is probably not going to be able to succeed. And
in those circumstances, only to preserve these industries, essen-
tially to wrap them in financial protection and carry them through
until the virus recedes. That is what the PPP program did in the
spring. A second round could do it again, going forward.
Senator ERNST. Ms. McFarland, do you have some thoughts?
Ms. MCFARLAND. Absolutely. Similar to the restaurant and the-
ater business, live event venues and producers have also been dev-
astated by this. We always love to have tens of thousands of people
together in one space, and right now we just are not able to do
that. With the course of the virus and the schedule of the vaccines
we are just not sure when we will be able to revitalize our core
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business. And so we are, myself and other small businesses, are in
great need of additional funding in order for us to ensure that we
can make it to that time.
Senator ERNST. Thank you. Any of the panelists that are joining
us virtually, if you have any thoughts?
Ms. WILLIAMS. I would only add that the failure to support these
businesses will have a devastating impact on the surrounding econ-
omy, so when businesses close it is not just the business owner
who, of course, loses their livelihood, but employees lose their jobs.
If the business owner has put their home up for collateral, they
might be at risk of losing their home. The neighborhood loses ac-
cess to a product or service.
So there are really a lot of cascading impacts that result from the
closure of businesses, and so I think it is important that we think
about how we protect these businesses to make sure we are not en-
couraging these negative economic impacts.
Senator ERNST. Thank you, Ms. Williams. And if I could continue
with you, please, because you are speaking a little bit to the frus-
trations and the impacts to the surrounding businesses as well. We
have heard from an increasing number of PPP participants about
their frustration and the fact that business expenses paid for using
PPP funds are taxable, according to the IRS. I have had many
small business owners bring this directly to me. And I know we
have spoken about this earlier in the testimony, but, Ms. Williams,
in your specific testimony you note that this has become an unex-
pected expense for many of these businesses. And I do worry that
this will be very devastating and have a huge impact on Iowa busi-
nesses.
Can you discuss the importance of reversing this guidance and
ensuring that these business expenses are deductible?
Ms. WILLIAMS. Yes, absolutely. I think it is an unanticipated neg-
ative consequence of PPP loans where, you know, business owners
who thought they were receiving a fully forgivable loan are now po-
tentially facing a large tax bill when they file their taxes next
spring, at a time when they can least afford to pay for it. I think
that it is something that Congress should immediately address, be-
cause, again, this is not anything that the lenders or the borrowers
had an understanding of when they entered into the agreement for
the PPP loan, and it has the potential to have a significant finan-
cial impact on businesses that are already struggling.
Senator ERNST. Yes, I agree completely. It is something that does
need to be addressed.
Mr. Holtz-Eakin, in your testimony you noted that the strengths
of PPP outweigh the weaknesses in the program and that there are
areas where we need to see improvement before another round of
funding is passed. You suggest that the single most effective reform
we could make to PPP is to change the focus from payroll to rev-
enue, which you, and I tend to believe as well, that that would be
the most reflective metric of the challenges that our small busi-
nesses are facing. Can you expand a little bit on that thought?
Mr. HOLTZ-EAKIN. As I said in my opening remarks, the driving
economic force that was prevailing at the time of PPP’s introduc-
tion was this enormous cash flow crunch across large swaths of the
economy, so there were no customers and there was no revenue
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coming in. The ideal replacement would be to replace the revenue
in its entirety and that would cover all the costs, and that would
preserve those businesses.
That is a lot more expensive. That would have been a trillion-
dollar program, easily, last spring, and it will be even more expen-
sive going forward. And I recognize, you know, there are challenges
in meeting that, but that is the logic which to sort of not pick and
choose among expenses but replace the business model when they
cannot operate because of the virus.
Senator ERNST. And certainly we want to make sure that as
many of the jobs that were supported by PPP are protected. That
is very, very important. But we do recognize that perhaps some
changes need to be made as we are moving forward.
Mr. Chairman, I do want to thank you and others on this Com-
mittee that have worked so diligently on this program. I cannot tell
you how many times I hear from Iowa businesses how important
this has been in protecting their employees and their livelihoods.
And I look forward to working on some of these reforms and mov-
ing forward with additional relief for our small businesses. So
thank you very much. I yield back.
Chairman RUBIO. Thank you, and thank you for all of your input,
all of the members, but in particular all of the input you gave us
on the unique needs of your State. It was instrumental, so thank
you.
OK. Let’s go online here. Senator Booker, are you ready?
Senator BOOKER. I am. Thanks so much, Chairman. And I just
want to thank you, the Chair and the Ranking Member, for just
holding this important hearing and all the work that we have been
able to do together. I really want to thank the panelists as well for
joining us.
As we speak, we are negotiating this COVID package, and more
relief is most certainly long overdue, but I am very, very concerned
that this current package will not fully address the needs of the
hardest hit small businesses and minority-owned businesses. We
have already discussed a lot of the structural challenges of the PPP
program, and really what small businesses have faced in chal-
lenges with getting the resources they need to stay alive, to sur-
vive. Many of them do not have the relationships with mainstream
banking and that has been a problem.
And so I am thrilled, as I have talked to a lot of the people who
are on the front line negotiating this package, that we will have
more resources for CDFIs, credit unions, small community banks,
MDIs, and for the Minority Business Development Agency. We
know that many small businesses are still, though, not yet in CDFI
networks. We need to change it. And many small business owners
simply are not really interested in taking on more debt.
And so maybe I would just like to just ask quickly, to the whole
panel, for anyone who might want to take this, but to me a piece
of this equation has to be the State and local relief funds which
have an unparalleled reach in the communities, on communities of
color, low-income communities. And the funds need to be flexible
in terms of financing options, and must include grants.
And so I would love to hear from the panel on do you agree with
me that when you are shutting down businesses or limiting their
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61
hours or other things that are important for us to get out of this
health crisis, I just really believe flexible funds and grants are real-
ly important to fill the gap. And I would love to hear any feedback
or thoughts on that.
Mr. ZERNICK. Senator Booker, this is Tom Zernick, and thank
you for your comments. I wanted to mention that in my testimony
I mentioned we really need to expand the eligible use proceeds
under a Round 2 of PPP. While payroll is important, businesses
need to know they can cover all of their operating costs to stay
open, and I would encourage all of you, as you look to the new
COVID relief package next week that we not only address the PPP
program and making the fixes, the no-cost fixes that we talked
about, but part of this has to be providing long-term capital to busi-
nesses that want to relaunch.
Today, we are looking at 7(a) loans. We are looking at dented fi-
nancial statements. We are looking at companies whose profit-and-
loss statements are showing tremendous losses. And while they
project profitability in the next 12 months, those are very difficult
credit decisions for us to make, and that is why we need, in addi-
tion to PPP, we need the enhanced SBA guarantee, taking it to 90
percent, and waiving the fees for these small businesses, and also
increasing our authorization cap, so we have access to funds to sup-
port all these businesses that you are talking about.
And as far as minority lending goes, I am proud to announce,
just this week, First Home Bank launched a $50 million minority
loan initiative. Ms. Williams, I am going to be contacting you, be-
cause I think we can help many of your clients. But we will open
our doors for PPP and 7(a) to all minorities, not only in the Tampa
Bay area, where we are at, but across the country.
So, Senator Booker, we are interested in expanding use of pro-
ceeds. We need the resources, including an enhanced 7(a), we need
Senator Coons’ 1112 payment extension, and certainly more PPP
today with the no-cost fixes I have described in my testimony.
Senator BOOKER. Thank you very much.
Ms. McFarland, I understand that you, in addition to Federal as-
sistance, your business received aid from Maryland and Prince
George’s County’s State and local relief fund. I have got a bipar-
tisan proposal called the Relief For Main Street Act, that would
send $50 billion to states, cities, and counties to seed and scale
funds like that, that are connected to communities, know where the
need is.
And I am just wondering if you could talk a little bit about that
experience of having a more locally-based fund that was able to
help get your resources.
Ms. MCFARLAND. Absolutely. The State and local funding initia-
tives are crucial to our community and small businesses around the
country. We were fortunate to receive funding from both the State
and the county level. They were not as restrictive so they allowed
us to invest in the actual flooring to house our basketball facility
and allow kids to train there.
In addition, our local communities often know us best, so pro-
viding them with resources enables them to support us and deploy
resources in effective and efficient ways. For example, in response
to COVID–19, Employ Prince George’s and several partners
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launched the Prince George’s County COVID–19 Hourly Employee
Relief Fund, which provides $200 cash cards to PG County resi-
dents who were recently laid off due to the pandemic.
At the State level, my State set up the Maryland Small Business
COVID Emergency Relief Fund, which was a $75 million fund that
offers $50,000 loans to assist Maryland for-profit small businesses
that have faced disruptive operations during COVID, with 0 per-
cent interest due for the first 12 months and 2 percent for the re-
maining 36 months. But the fund stopped accepting applications in
early April, so we are still in need of those fundings for the local
and State levels. Thank you.
Senator BOOKER. Thank you. I want to be respectful. I think I
am at my time. But I do want to say, Chairman, we have made
a lot of progress on this Committee about removing the collateral
consequences for people with prior criminal convictions. We did not
eliminate them, though, and there are still some, what I believe are
really unfair exclusions for people with past criminal convictions
within a year, that have nothing to do with their business or busi-
ness enterprise, nothing to do with sort of maybe concerns about
their financial reliability or what have you.
And I would still love to work with folks here to try to remove
those final restrictions as we go to another round, God willing, as
we go to another round of PPP and potentially EIDL loans as well.
Chairman RUBIO. And I think it will be interesting to continue
to work on that. Are those new glasses? Is that new look?
Senator BOOKER. You know, man, this is what you call I am get-
ting old, my brother. They are called readers for agedly-impaired.
Chairman RUBIO. I had trouble today for the first time seeing the
name tags from the distance here, so I may be looking to buy those.
We will match up.
Senator BOOKER. Us Gen Xers, man, we are getting there, slowly
and surely. We are going to need it more.
Chairman RUBIO. I am going to have to use what Cardin uses.
Look at how wide and Senatorial they are.
Senator BOOKER. I suggest, Chairman, that you shave your head
before——
[Laughter.]
Chairman RUBIO. Is that the look? Okay.
Senator BOOKER. Yes.
Chairman RUBIO. All right. Why not. It is 2020—what else could
happen?
Stay safe. All right.
We have Senator Hirono and then Senator Rosen.
Senator HIRONO. Thank you, Mr. Chairman, and I thank the wit-
nesses. I am glad that we are focusing on how we can improve the
PPP program and other programs that are specifically targeted to
help small businesses.
I just heard Mr. Zernick mention that he would support SBA
loan guarantee up to 90 percent, which I think right now, Mr.
Zernick, is at like 70 percent or 75 percent, and that you would like
an increase of your authorization cap.
Ms. Williams, I believe that you represent a network of small
lenders. Would you also support these two suggestions that Mr.
Zernick made?
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Ms. WILLIAMS. Yes, absolutely. We do support raising the guar-
antee on the 7(a) program, and I would also like to say that we also
support the extension of the Section 1112 CARES Act debt relief
payments. Like Mr. Zernick said, those were incredibly helpful for
both borrowers and lenders, to provide a little breathing room dur-
ing this crisis, where borrowers did not have to make those pay-
ments but lenders were still able to receive that income from the
SBA. So those have been tremendously helpful.
Senator HIRONO. I think some of these provisions are in Senator
Cardin’s HEROES Small Business Lifeline Act. Ms. Williams, have
you read that proposal, that bill?
Ms. WILLIAMS. Yes.
Senator HIRONO. Mr. Zernick I wonder whether you support the
provisions of this bill, because I think that it does really help the
people that you represent. Mr. Zernick?
Mr. ZERNICK. Yes, absolutely.
Senator HIRONO. You will support this bill?
Mr. ZERNICK. Yes, I absolutely support that, Senator Hirono, and
I saw it firsthand in the Great Recession of 2009, when President
Obama’s Recovery Act elevated the guarantee to 90 percent. It also
increased the authorization cap and it waived the lender and bor-
rower fees. We lent our way through recovery through 7(a) loans.
Commercial lending stopped, like it is now, and borrowers simply
had no access to capital, and that is the benefit, the power of SBA.
So I strongly encourage the COVID relief bill that gets reviewed
next week include not only the PPP, with our no-cost fixes, include
Senator Coons’ 1112 payments, but also include an enhanced guar-
antee, gets the cap rate and the authorization we need, and waive
the fees for our borrowers.
Senator HIRONO. Thank you very much. I think we are still fo-
cusing on getting Republican support for the kinds of items that
you just talked about in the relief negotiations.
I have been very much focused on helping those businesses with
fewer than 10 employees. So I would call these smaller businesses
within the framework of small businesses, so businesses with 10 or
fewer employees. And we need to make sure that these smaller
businesses, they do not have the accountants and the lawyers to
help them navigate through all of the requirements for getting a
PPP or EIDL or any of those kinds of loans, not to mention loan
forgiveness.
So can any of the witnesses elaborate on the particular chal-
lenges that smaller businesses, as I have described, have experi-
enced with PPP, and what can we do specifically to make sure that
these smaller businesses are able to access these programs? This
would be for any of the witnesses.
Mr. ZERNICK. Senator Hirono, I can tell you that I was getting
my hair cut this weekend in preparation for this hearing today,
and my beautician happened to get a small PPP loan. And I said,
‘‘How is it going, Kim, on your forgiveness process?’’ and she said,
‘‘Quite honestly, the application was so complex I had to hire an
accountant, and I just do not have the money to pay for an account-
ant to help me compile the information needed to process her for-
giveness.’’ That was very concerning to me, Senator.
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So I think that as we look at lending money in the smaller loan
space here, we have to make it non-complex. These people do not
have CFOs. We have to keep it simple, keep the calculations sim-
ple. And again, this program can work. In fact, of the 9,000 loans
we did at First Home Bank in PPP, 6,800 of them were less than
10 employees. We were doing loans for $500. So again, we have to
focus on these truly small businesses, and that is really what Main
Street is about.
Senator HIRONO. So there must be some specific things we can
do with regard to how Treasury and SBA and others put out their
guidance, because if people cannot understand, make it out, and
you have to actually hire people to help them, that does not make
much sense.
So going forward I would really like to have the witnesses who
have experience with this, if you have very specific ways that you
can change the kind of language that is used in the guidance, the
kind of requirements please let us know.
And, Mr. Chairman, I hope that we can focus on having the ad-
ministration be much more transparent and communicative in how
they are dealing with hundreds and hundreds of thousands of
small businesses right now who are trying to get loan forgiveness.
I think my time is up. Thank you, Mr. Chairman, and again, I
thank the witnesses.
Chairman RUBIO. Thank you. Senator Rosen.
Senator ROSEN. Well, thank you, Mr. Chairman, I really want to
give you a special shout-out for your leadership over the past cou-
ple of years. Small businesses are just really in a better position
because of it. We have worked on a lot of things that have really
helped my State, and I appreciate working with you and your staff
always. I also want to thank Ranking Member Cardin and Senator
Shaheen for their continued mentorship and leadership as well.
They really have been so helpful. Ninety-nine percent of businesses
in Nevada are small business. This Committee really has helped us
get the resources that we need at home, particularly in the pan-
demic.
But, you know, we are hearing today about the small businesses
and coronavirus has put millions out of work, millions of people out
of work. Of course, I am fighting like everyone else for a second
round of PPP for our struggling small businesses, direct support to
restaurants, live entertainment, help for our hospitality and tour-
ism industry, of course, very important in Nevada. It is the back-
bone of our economy.
It is why I just introduced, along with Senator Cornyn, legisla-
tion to provide direct relief to all of our small businesses, the EIDL
for Small Businesses Act. This bipartisan legislation would lift the
SBA’s cap on both EIDL loans and the EIDL advance grants that
we have been talking about. So it would provide all eligible small
businesses with loans up to $2 million, and the full $10,000 grants
regardless of size, and it would replenish the EIDL and the EIDL
advance accounts by $180 billion. And as everyone has been dis-
cussing, EIDL and PPP have really worked together to take care
of our businesses. We need more flexibility with the PPP, and I
hope that we are going to continue to do that.
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But Ms. McFarland, I know that your business, you received
EIDL funding early on, before the SBA put on these arbitrary caps
that we are trying to lift. So can you just speak briefly, if your
business had not received the full EIDL loan that you were eligible
for, $490,000, and instead only received $150,000, how would it
have affected your business if you had these caps placed on you?
Ms. MCFARLAND. I would be sitting here today telling a much
darker story had we been capped at that $150K. Because we did
not have that cap we were able to produce a dream that my par-
ents and I put together to not only allow our business to survive
but allow our community to also thrive. Those funds were crucial
in the rehiring of our staff, the paying of our rent. Our rent alone
is $36,000, and we had a gracious landlord that allowed us to re-
duce our rent during the summer. That extension ended around
October. And so those funds were also able to cover those expenses
as well.
But all of those funds were exhausted at the end of October, and
so I implore Congress to provide an influx of funding as soon as
possible so that we can continue to be of service to our community
and our employees.
Senator ROSEN. Thank you. I want to follow-up a little bit on
that, because we need to be sure, when we support all of our busi-
nesses, that consumer confidence, people feel safe going back in-
doors, to a restaurant, to a venue, to a hotel, casino, wherever it
is, movie theater, whatever it is you are doing.
And so I want to be sure that we provide businesses with fund-
ing for not just the PPE technologies but other technologies that
might make our indoor spaces more safe, like increased ventilation,
tax credits for that, upgrading your HVAC and some of those
things.
So have you incorporated any systems like that, or how would
that help you if we were able to give you support to upgrade your
ventilation system so people might feel more confident about the
air they are breathing indoors?
Ms. MCFARLAND. Absolutely. Our main priority is the safety and
health of our customers, the kids that come through our doors, our
employees, my parents. And so we have already taken the sacrifice
to invest in expensive technology and equipment to ensure the safe-
ty of the participants that come through our facility. We have hired
another small business to come in and clean our facility 10 hours
a day. They clean and sanitize between uses of the basketball facil-
ity.
We have also updated our HVAC system, which was a large ex-
pense, but we knew we had to commit to that, because we are com-
mitting to our community wholeheartedly. So having funding to
help us continue to invest in those safety precautions would be in-
credible.
Senator ROSEN. Thank you. I appreciate everything you are
doing and hopefully they are going to provide some form of help to
allow businesses to upgrade, to make all of the spaces safe going
forward.
Thank you, Mr. Chairman.
Chairman RUBIO. Thank you. Senator Hawley.
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Senator HAWLEY. Thank you, Mr. Chairman. Thank you for hold-
ing this hearing. Thanks to the witnesses for being here.
I want to start by acknowledging that the PPP program has been
a vital lifeline to small businesses in my State of Missouri. It has
saved probably countless jobs. I mean, hopefully we will know the
number at some point, and it will be, I am sure, a very high num-
ber indeed. But it has been a vital, vital program, and it has en-
joyed broad bipartisan support.
However, I think it is worth knowing, we have to note, that de-
spite the supposedly broad bipartisan support, we still have not
been able to get the program renewed. We still have not been able
to get consensus, to actually bring to the floor, have a debate, and
vote on a bill that would supply additional funding to renew this
program at a vital time. And we see just from today’s unemploy-
ment numbers that unemployment claims are once again on the
rise. This can only be described as a failure of the Senate and of
this Congress to take action at this vital time. So I want to under-
score again that it is time to give this program another lease on
life, to make sure that we get small businesses the help that they
need.
I also want to raise one other issue, one other problem with the
program that we have seen in my State, at least, and that is the
changing terms on the loan issuance at the front end and then also
the loan forgiveness. In particular, now the SBA has recently an-
nounced that it is going to mandate that borrowers that receive
loans of more than $2 million complete a detailed Loan Necessity
Questionnaire that describes their operations and financial condi-
tions during the pandemic.
Now I just want to raise one set of concerns with this and with
that questionnaire as it has been written, as it relates to churches.
Now I want to be clear—I am all for making sure that for-profit
organizations, like the Lakers, for instance, that I think applied for
initially and tried to get a PPP loan—I mean, give me a break. For-
profit institutions absolutely—first of all, no institution should be
getting the loans that do not need them. Second, for-profit institu-
tions should be subjected to rigorous scrutiny here, and perhaps
many nonprofits as well.
My concern with the way the questionnaire is written is as it ap-
plies to churches, churches now are being asked to disclose all
manner of information under this draft questionnaire that they had
no ability to anticipate when they applied for the loan. And can I
just say, it was very difficult for quite a few churches in my home
State to get loans initially because the SBA wrongly informed local
lenders, for the first approximately week of this program, that
churches were not eligible.
So after all of that difficulty in applying for the loans, now
churches are told, ‘‘Oh, wait a minute. Actually, we are changing
the terms and the forgiveness program, and we want lots more in-
formation, in fact, different information than we told you initially
we would ask for, and if you do not give it to us, maybe we just
will not forgive your loan after all.’’
I do submit to you, Mr. Chairman, that that is simply not fair
as it relates to these organizations, these nonprofits that are, by
definition, of course, religious institutions, nonprofits.
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And so I have written to the SBA about this. I want to express
my concerns about that questionnaire as it applies to religious non-
profits, to churches on the record, and I hope this is still a draft
questionnaire and it has not yet been sent out. But I just want to
make it clear that I have major concerns with how this will be ap-
plied and how it will affect the religious institutions who, frankly,
have had a more difficult time under this program than they
should have.
Mr. Zernick, in the time that I have remaining here let me just
ask you, start at least, with a question about how this program, in
your experience processing loans under this program, has gone for
urban and rural areas. My state, again, the State of Missouri, is
actually a majority rural and ex-urban. The rural areas predomi-
nate. I imagine that your institutions have processed loans for
small businesses in both, in both urban and rural areas. Can you
give us a sense of what your experience has been in assisting bor-
rowers in the two different regions, and have rural borrowers been
able to get access to the program successfully?
Mr. ZERNICK. Sure, Senator. Let me start by saying last year
First Home Bank was a top 10 SBA lender in the country. We are
a preferred lender. We lend actually in all 50 states, including your
fine State. We lend in the rural markets. We lend in the large met-
ropolitan statistical areas. We do not have any geography restric-
tions. When we did the PPP program, we opened our doors to busi-
nesses across the country. And while about a third of our loans
were done in our home state here in Florida, two-thirds of our
loans were done across America, including the rural communities.
So we are very proud of that, and as we position ourselves for
Round 2 PPP, we will continue to open our doors to First Home
Bank customers and non-First Home Bank customers, and I assure
you, we will be lending in the rural communities as well, like we
did in Round 1.
Senator HAWLEY. Ms. Williams, can I just give you an oppor-
tunity briefly to comment, and ask you if you have any perspective
on this?
Ms. WILLIAMS. Absolutely. There are many CDFIs that are fo-
cused on meeting the credit needs of their rural communities, and
PPP was no exception to that. So there are some lenders who, you
know, of course served their existing customer base with PPP loans
first but then opened their doors to other small businesses and
nonprofits who needed access to capital.
And I think the virtual nature of how we are operating during
the pandemic actually made it a little bit easier to reach some of
these rural customers through online means, to help them apply for
PPP loans, than we might have seen if it was a more sort of—based
on a physical, in-person process. So CDFIs are always looking for
ways to expand their footprint, to provide more access to capital in
our rural communities.
Senator HAWLEY. Very good. Thank you. Thank you, Mr. Chair-
man. I will have some additional questions for the other witnesses
for the record, but my time has expired. Thanks, Mr. Chairman.
Chairman RUBIO. Thank you. Do we have anyone else on?
Senator Cardin, did you have any follow-up questions?
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Senator CARDIN. I just really want to thank this panel, and I
think this has been one of our most informative hearings. You have
really given us a lot of really good suggestions, moving forward. I
think it is very timely, because we do hope that we are going to
be able to act on a COVID package before we adjourn for the holi-
days. And I think we have gotten some valuable help through all
four of the panelists, so thank you very much for your input, and
I can assure you that we took notes and we are going to use this
information moving forward, to try to do the right thing for small
businesses.
Chairman RUBIO. Great. Thank you. We were waiting for Sen-
ator Young but he is not back on the WebEx. He is on? Senator
Young, are you there?
Let me give him a few seconds. I do not want to hold the wit-
nesses up any longer, but he was on earlier.
There he is.
Senator YOUNG. My apologies. Thank you, Chairman. We had
some technical challenges. Can you hear me okay?
Chairman RUBIO. We can hear you perfectly.
Senator YOUNG. All right. Well, I thank the witnesses so much
for being before the Committee today, and I commend Chairman
Rubio for his leadership on small business issues throughout this
pandemic. The Debt Protection Program has been highly successful
helping small businesses, and by extension, their employees weath-
er this pandemic. I am glad we are here today to discuss extending
the program and also to assess ways we might improve it.
According to the 2020 Indiana Manufacturing Survey, 44 percent
of respondents cited the PPP as the primary reason for their sur-
vive. Still, nine months after many of the government-mandated
closures first went into place, we are seeing small to mid-sized
businesses struggling to make ends meet, placing more jobs at risk.
As one example, Tyler Truss Systems in Pendleton, Indiana, has
been a leading truss manufacturer to the live events industry. They
received a PPP loan in May that enabled them to keep their 72 em-
ployees on the payroll. But as the pandemic has continued and the
live events industry remains largely shuttered, Tyler Truss has
seen a significant decline in sales, with an 87 percent drop in the
third quarter of this year. The company is now down to less than
20 employees, and without additional relief they will continue to
struggle.
For several months I have been pushing for additional small
business relief, including my RESTART Act with Senator Michael
Bennet, and I would like to thank Chairman Rubio for working
with me and my staff on including some of the principles from RE-
START, like the revenue decline threshold and expansion of forgiv-
able expenses, in the PPP second draw proposal. Given the
progress in negotiations these past few weeks, I hope we can come
together and pass more relief in short order.
With millions of businesses still facing financial uncertainty, my
RESTART Act would address the concerns heard from across the
country, where businesses were restricted from relief programs, in-
cluding businesses in manufacturing, hospitality, travel, recreation,
and entertainment. The RESTART proposal would target our lim-
ited resources to the hardest-hit businesses, including those over
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69
500 employees, by offering partial loan forgiveness based on rev-
enue decline.
Additionally, it would provide flexible loans to help employers
with a broad set of operating expenses, instead of a focus on payroll
costs. This is especially important for those who cannot maintain
full payrolls due to significant and sustained loss in revenues.
I should note that the RESTART Act currently has 59 bipartisan
co-sponsors in the United States Senate.
For Mr. Holtz-Eakin, in your testimony you indicated one of the
most effective reforms would be to change PPP’s focus from payroll
to revenue replacement, similar to what my RESTART Act would
do. Can you kindly elaborate on the importance of this possible re-
form and its benefit for a recovering economy?
Mr. HOLTZ-EAKIN. Certainly, Senator. As I noted earlier, the eco-
nomic problem that the PPP addressed was large cash flow crunch,
generated by the virus itself, and the fear people had to engage in
commerce and thus risk infection or transmission of the disease. So
when the customers disappeared, the revenue disappeared, and the
mechanical replacement of the revenue would address that busi-
ness model problem.
The difficulty you face is that it is much more expensive and tar-
geting a much smaller part of the cost base of the business, but
economically it is far more effective.
Senator YOUNG. Thank you so much. I have one additional ques-
tion for you, if the Chairman will indulge me. It pertains to sea-
sonal employment.
We have a business in Indiana that I would like to cite as an ex-
ample: Holiday World and Splashin’ Safari. It is fourth-generation,
well-known, family-owned theme park located in the southern part
of my state. And historically, Holiday World has earned 99 percent
of its revenue between the months of May and October.
However, like most seasonal businesses, Holiday World was un-
able to open until June, and ended the season early, in September.
I am told that Holiday World experienced a 66 percent year-over-
year revenue loss in 2020.
Unfortunately, the amusement park did not qualify for an origi-
nal PPP loan because it exceeded the full-time employee threshold.
However, I am hopeful that PPP second draw program will incor-
porate a new seasonal employee definition that takes into account
the unique fluctuations for these types of businesses.
Again, for Mr. Holtz-Eakin, are there any additional PPP im-
provements you think Congress should consider to ensure small
businesses receive the relief they need, especially any changes re-
lated to seasonal businesses?
Mr. HOLTZ-EAKIN. Senator, I have not given any specific thought
to seasonal businesses, but I think the rule of thumb should be to
spread it over the full year and see if it qualifies for the program,
and my expectation is that it would, under those circumstances. So
that is a modification we might think about, going forward.
Senator YOUNG. Very good. Thank you so much to all of our wit-
nesses, and to Mr. Holtz-Eakin for answering my questions, and I
yield back to the Chairman.
Chairman RUBIO. All right. Well, I want to thank all of the wit-
nesses for participating here today, all the members who attended
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70
this hybrid hearing, and I just appreciate the time you have given
us as well. I know it has been in excess of the two hours, but I
hope you sensed from the questions and the members’ interest how
important this is to everybody.
Just as a technical note here for a business item on the Com-
mittee, the hearing record will remain open for one week instead
of the usual two because of the end of the year and so forth. So
if any members have any statements or questions for the record we
ask that they submit it by Thursday, December 17th, which is a
week from today, at 5 p.m.
So with that thank you to everybody, and with that the hearing
is adjourned.
[Whereupon, at 12:16 p.m., the hearing was adjourned.]
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