TESTIMONY OF EVERETT K. SANDS, CEO OF LENDISTRY TO THE HOUSE SMALL BUSINESS COMMITTEE
Summary
Written testimony of Everett K. Sands, CEO of Lendistry, to the House Small Business Committee for the January 18, 2024 hearing "Unleashing Main Street's Potential: Examining Avenues to Capital Access." Sands states that Lendistry's grant and loan programs have provided over 630,000 small businesses with nearly $10 billion in capital and that Lendistry was the #8 PPP lender in the country in 2021. Sands recommends that policymakers fix the state-by-state licensing model that prevents CDFIs from serving small businesses on a nationwide footprint, increase access to the Federal Reserve Bank, and form a task force to analyze programs on an ongoing basis. The testimony cites SBA data that the overall average 2021 PPP loan size was $45,000 and that loans originated by CDFIs averaged less than $27,000.
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“TESTIMONY OF EVERETT K. SANDS, CEO OF LENDISTRY TO THE HOUSE SMALL BUSINESS COMMITTEE.”
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TESTIMONY OF EVERETT K. SANDS, CEO OF LENDISTRY
TO THE HOUSE SMALL BUSINESS COMMITTEE
“Unleashing Main Street’s Potential: Examining Avenues to Capital Access”
January 18, 2024
1
I. Executive Summary
It is a truth universally acknowledged that small businesses are the powerhouses of their local
communities. When small businesses grow and thrive, they elevate the people who live and
work around them. When they fail, the number one reason is lack of capital. Specifically, the
Main Street businesses that power our economy need small-dollar loans to grow to the next
level.
My message today is that, right now, there is an army of lenders who stand ready to deploy the
capital needed to unleash Main Street. These lenders have proven themselves to be the most
effective capital deployers for underserved communities, yet they work with one hand tied
behind their backs due to hurdles that made sense when they were first enacted, but no longer
fit today’s finance landscape. The lenders I’m talking about are Community Development
Financial Institutions (CDFIs). Disparity in access to capital on responsible terms is a critical
hurdle for small businesses, both in powering the nation’s economic and jobs recovery, and in
narrowing the racial wealth gap. In order to do our part to unleash Main Street, we need you to
unleash us.
To summarize the specific recommendations that I discuss in greater detail below, I propose
that policymakers:
1. Fix the state-by-state licensing model that prevents CDFIs from efficiently serving small
businesses on a nationwide footprint
2. Increase access to the Federal Reserve Bank and Federal Home Loans Bank to facilitate
more small-dollar loans that Main Street businesses need in their growth stages and
cannot access from traditional banks
3. Form a task force to analyze programs in an ongoing basis to make sure they remain
catalytic and responsive
II. Introduction
Committee Chairman Williams, Ranking Member Velasquez, Vice Chairman Luetkemeyer, Vice
Ranking Member Phillips and distinguished members of the Committee, thank you for calling a
hearing on Unleashing Main Street’s Potential, and for your interest in my perspectives and
insights on this topic.
My name is Everett K. Sands, and I am honored to be invited back to offer testimony before this
committee. I have more than 20 years of experience in lending at community banks, one of the
largest national banks, and at the only fintech Community Development Financial Institution,
Lendistry. As founder and CEO of Lendistry, I have focused on innovating and executing
alternatives to traditional financing to support the underserved small businesses that
frequently fall through the gaps, particularly those owned by minorities, women, veterans, and
people in rural areas.
2
To date, our grant and loan programs have provided over 630,000 small businesses with nearly
$10 billion in capital. More than 60% of Lendistry’s outstanding principal loan balance is with
minority and women-owned borrowers, more than 70% is with underserved small businesses,
and 60% is with low- or moderate-income borrowers. Lendistry was the #8 PPP lender in the
country in 2021, ranked above large banks like Wells Fargo. All this is to assure you that, while
my team and I never claim to have found the final solution, we have made significant progress
in reaching the communities that need capital and lack experience with the application process.
Lendistry is a minority-led fintech CDFI and Community Development Entity (CDE), and a
member of the Federal Home Loan Bank of San Francisco. Women and minorities comprise a
significant majority of Lendistry’s management team. Lendistry is a proud signatory of the Small
Business Borrowers’ Bill of Rights, guidelines set by The Responsible Business Lending Coalition.
Since launching in 2015, Lendistry has sought to use fintech—and partnerships with financial
institutions, non-profits, and government organizations—to help solve the problem of
disparities in access to capital, to open doors that were previously closed to small businesses
owned by minorities, women, and veterans, businesses located in rural areas, or businesses
whose financing needs to take the next step in their development are just too small for
traditional banks.
As a hybrid of a fintech lender and community bank with roots in traditional banking, Lendistry
combines the best of fintech—efficiency, scalability, and seamless user experience—with the
best of traditional lending—low cost of acquisition, low cost of funds, and strong risk
management—and all with an unwavering commitment to responsible credit culture and
expanding access to small business funding.
Our proprietary technology and online application portal enable a faster and more widely
accessible lending process for small business borrowers. Since I last addressed this committee,
we have improved our processes to provide conventional loans in as little as five days, and SBA
7(a) loans in as little as 14 days. I’ll pause there a moment—as an SBA preferred lender and
fintech, we are funding SBA 7(a) loans, which traditionally take up to 90 days to process, in as
little as two weeks
III. An Army of Lenders Stand Ready: State of Small Business Capital Needs Post-
Pandemic
The capital access landscape many small businesses traversed before and since the pandemic
resembles a desert, where the lifeblood of responsibly-priced capital is scarce. Worse, it is a
desert that is made almost impossibly steep by the prevalence of predatory lenders that have
filled a void left by two decades of bank consolidation. The small businesses that tend to be
most affected by these arduous conditions are those owned by minorities, women, and
veterans; those located in rural areas; and those which, regardless of their ownership
3
demographics, have capital requirements that are simply too small to be profitably served by
traditional banks, whose median asset size ballooned by more than 500% between 2000 and
2019.1
The economic relief efforts in response to COVID have provided ample evidence that dramatic
actions to increase the availability of capital will only benefit these underserved small
businesses if the capital is connected to effective conduits that are willing and able to reach
them. While traditional banks are very effective in deploying very large amounts of capital, their
operational incentive is to do so through as few separate underwritings as are prudent from a
risk management perspective, resulting in a very large average loan size. This logic also bears
out in Federal Reserve survey data regarding the businesses that traditional banks tend to
establish relationships with. Minority-owned businesses—which are disproportionately small
businesses—are much less likely than other businesses to have banking relationships.2 Thus,
well-intended measures that push more capital to traditional banks can have the effect of
incentivizing banks to make larger loans, as we saw with the original version of PPP, or can
result in vast amounts of available capital simply going untapped, as we saw occur with the
original version of the Main Street Lending Program.
Congress responded to the economic threat posed by COVID in bold and historic ways, and
while there is more that can be done, entrepreneurs always look ahead, and I want to focus
today on enduring solutions for small business capital access. The response to the pandemic
shone a bright light on what works when it comes to financing underserved communities.
The good news is that the small business COVID relief effort also has validated that CDFIs are
effective conduits for deploying capital to small businesses, and that when systemic hurdles are
cleared for CDFIs, the accessibility of responsibly-priced capital improves for small businesses
generally, and for underserved small business especially. For example, using PPP loan size as a
rough indicator for the relative size of businesses, according to SBA data for the 2021 PPP
program, the overall average loan size was $45,000, the average size of loans originated by
banks was $62,000, and the average size of loans originated by CDFIs was less than $27,000.
Likewise, according to SBA data for the 2020 PPP program, the overall average loan size was
$101,000, the average size of loans originated by banks was $141,000, and the average size of
loans originated by CDFIs and Minority Depository Institutions together was about $74,000.
1
Most banks simply are too large to efficiently make small loans. Twenty years of bank consolidation has cut the
number of FDIC-chartered banks in the U.S. by 45%. According to FDIC data, there were 8,315 FDIC-insured banks
in 2000, compared to 4,519 in 2019, with just 32 new FDIC-insured bank charters issued since 2010. As a result, the
median asset size of remaining banks has grown by more than 500%, from $751 million in 2000 to $3.9 billion in
2019.
2
Federal Reserve Banks, 2019 Small Business Credit Survey and 2020 Report on Employer Firms. Fewer than 1 in 4
Black owned businesses with employees and fewer than 1 in 3 Latinx-owned businesses with employees had
received funding from a bank in the prior five years, compared with nearly half of white-owned firms with
employees. Moreover, just 1 in 10 Back-owned sole proprietorships or independent contractors – which comprise
a disproportionate share of all Black-owned businesses – had a recent borrowing relationship with a bank,
compared with 1 in 4 white-owned non-employer businesses.
4
Paradoxically, this time of upheaval and uncertainty was an inspiring time for entrepreneurs.
Nearly ten million new businesses were formed in 2020 and 2021, according to the U.S. Census
Bureau. 3 The nearly 4.4 million new businesses formed in 2020 was more than 50 percent
higher than the average annual number of new businesses formed between 2010 and 2019.4 In
fact, 2020’s new business formation figure was a record, but it stood for just one year before it
was far surpassed by the 5.4 million new businesses formed in 2021. 5
Furthermore, a raft of data reveals how significant a role minority and women entrepreneurs
have played in the recent new business formation activity 678, building on their already-strong
pre-pandemic entrepreneurial representation.9 It is urgent that policymakers and large
enterprises alike recognize the implications of these trends. It means minorities and women will
be increasingly impacted by policies around small business and capital access.
Emerging from the pandemic, we have learned that the need for access to responsible loans in
smaller amounts is essential for the new businesses I’ve described to grow out of the early
stages, evolving from employing only their founders, to employing and empowering their
communities as job creators. The demand for loans in small amounts is clear. In 2023, 77% of
SBA 7(a) loans were under $500,000. This amounts to a quarter of all 7(a) dollars approved. To
dial down further, 27% of 7(a) loans in 2023 were under $50,000. 10 In 2021, over 80% of SBA
microloan applicants ($50K and under) were in underserved communities as defined by SBA. Of
these microloans, 50% went to minority-owned businesses and 48% went to women-owned
businesses. 11
3
“New Startups Break Record in 2021: Unpacking the Numbers,” Daniel Newman and Kenan Fikri for Economic
Innovation Group, January 19, 2022. https://eig.org/news/new-start-ups-break-record-in-2021-unpacking-
thenumbers
4
“Entrepreneurs Started Businesses in Record Numbers During the Pandemic,” Brett Grossfeld for
Salesforce.com’s The 360 Blog, June 29, 2021. https://www.salesforce.com/blog/small-business-
pandemicentrepreneurs/
5
D. Newman and K. Fikri
6
“Black Business Owners Are Up 38% from Pre-Covid Levels,” Michael Sasso, Bloomberg, September 15, 2021.
https://www.bloomberg.com/news/articles/2021-09-15/black-business-owners-are-up-38-in-u-s-from-pre-
covidlevels?sref=2gRlZMND
7 “Black-owned businesses took a pandemic hit, but they’re doing better than ever now – largely because of Black
women,” Jason Lalljee, Insider, February 7, 2022. https://www.businessinsider.com/black-women-businesses-
fuelincrease-pandemic-hit-entrepreneurship-covid-2022-2
8
“Black women are the fastest growing group of entrepreneurs. But the job isn’t easy,” Elana Dure, J.P. Morgan
Chase, October 21, 2021. https://www.chase.com/personal/investments/learning-and-
insights/article/blackwomen-are-the-fastest-growing-group-of-entrepreneurs-but-the-job-isnt
9
“Black Entrepreneurship Represents Highest Rate in U.S.,” Bryan Lipiner, Global Enterpreneurship Monitor,
August 13, 2020. https://entrepreneurship.babson.edu/gem-data-black-entrepreneurship-us/
10
NAGGL, https://cdn.ymaws.com/www.naggl.org/resource/resmgr/gross_loans_fy23/09_30_23.pdf
11
“Evaluation of Microloan Program Outcomes,” SBA, November 2021,
https://www.sba.gov/sites/default/files/2022-
01/Evaluation%20of%20Microloan%20Program%20Outcomes%20Final%20Reportv2_508v4.pdf
5
According to the Intuit QuickBooks Small Business Index’s Annual Report, access to financing is
harder to obtain for new businesses and those owned by women or underrepresented racial
groups. Small businesses owned by underrepresented racial groups are twice as likely to say
“getting funding” is their #1 challenge. 72% of men who own small businesses say they can get
funding over the next 12 months but among women, this drops to 64% 12. In my experience,
continued access to nonbank fintech credit is key for small businesses, particularly those who
tend to need smaller dollar loans.
My recommendations today are directly related to empowering CDFIs to effectively lend in
smaller amounts and serve the businesses Congress aims to unleash.
IV. Unleashing CDFIs: Universal Licensing for a Nationwide Footprint
The anachronistic state-by-state licensing requirement for CDFIs not only limits how quickly
capital can be distributed but also how effective the CDFI designation can be as a force for
deploying responsible capital in lower loan amounts.
What a business owner sees:
A single mom in Maryland has a sole proprietor business, the most common business structure
in the U.S. She needs a loan for $12,000 to market her business and make sure she has the kind
of digital presence her customers expect. Bank loans start in the millions, and she needs some
technical assistance with the application, so she applies at a CDFI. Her credit is solid, and with
some help she has presented all the documents she needs to apply. But she finds that no CDFI
can help her.
What happened at the CDFI:
The customer has strong credit and her cashflow looks like she can repay the loan. There’s one
big problem: Maryland’s commercial lending laws set the commercial loan minimum at $15,000
unless the business is a corporation. In order to serve this business owner and others like her
and help them grow, the CDFI has to apply for a separate license to offer personal loans. This is
a long and costly process the CDFI’s team hasn’t had the bandwidth to pursue.
Recommendation: CDFIs should be exempt from state-by-state licensing requirements, thereby
bringing about three clear benefits:
1. CDFIs can move much faster to deploy capital where it’s needed
2. CDFIs can more easily attain the risk management benefits of geographic diversification
12
Intuit QuickBooks Small Business Index Annual Report 2023, October 6, 2023,
https://quickbooks.intuit.com/r/small-business-data/index-annual-report-2023/?cid=pr_TOF_QBB_press-
release_US_EN_SMBIndex_AR
6
3. Many more lenders would be motivated to attain CDFI designation, which would have
the effect of significantly increasing the supply of capital provided on responsible terms
and, through market forces, make predatory lending businesses less economically viable
The Nationwide Mortgage Licensing System has already proven that this can be done!
V. Unleashing Lenders: Increase access to FRB and FHLB for CDFIs
The current market environment has provided two handicaps for CDFIs, lack of liquidity due to
a tightening of banks’ credit parameters and higher interest rates affecting the affordability of
loans.
What the business owner sees:
A local grocery store in Austin, TX wants to expand its hours to accommodate the working
schedules of its local customer base. The owner needs $50,000 to hire more employees for the
added shifts. This will also increase their revenue by bringing in new customers who need to do
their shopping early in the morning or late at night. He goes to a CDFI for the loan. The process
is going well, but when he gets the offer, the interest rate is much higher than he can afford.
What happened at the CDFI:
As the loan officer worked with the finance team to determine the offered rate, they took
several factors into account.
1. The Wall Street Journal Prime rate that sets the base for all small business loans,
currently 8.5%
2. The customer’s risk profile, which tells them this customer is in the middle range of
likelihood to pay the loan back in full
3. The operational cost associated with processing and servicing the loan
4. The cost of the capital it will use to support the loan, which it borrowed from a bank
partner and pays back at Prime
The CDFI does not have low-cost sources of liquidity, and has not received adequate lending
capital from banks, so it has to make the decision to either leverage higher-cost capital, or not
provide the loan to the business owner. Likewise, on a small amount like $50,000, the interest
rate the customer can afford is simply not financially feasible for the lender to stay in business,
let alone grow and innovate. With heavy hearts, the leadership decides to raise their loan
minimum or charge higher interest rates on the small dollar loans.
Recommendation: In addition to state-by-state licensing discussed in the previous section,
CDFIs should get access to the Federal Reserve Bank and expanded access to the Federal Home
Loan Bank. Here are the benefits:
7
1. With additional sources of liquidity, CDFIs can provide additional lending to underserved
and undercapitalized communities as seen with the PPPLF loans provided by FRB to
CDFIs
2. Access to lower costs of funding will immediately decrease the interest rates CDFIs
provide to their customers
3. Today, the Federal Home Loan Bank does not allow CDFIs to pledge small business
loans. This should be immediately changed.
In combination with blended rates made possible by state loan guarantees and State Small
Business Credit Initiative (SSBCI) support, this recommended system would be a game changer
for CDFIs and their borrowers. 13
VI. Government Capital: Catalytic, Responsive & Engaged
As evidenced by PPP, SSBCI and the many programs implemented to provide pandemic relief,
our government can rise to the occasion to deploy assistance and save small businesses. From
the capital deployer’s perspective, government support is at its best when it’s:
• Catalytic – Tuned into helping new industries, like renewable energy, thrive and
innovate
• Responsive – Considerate of current market conditions, like inflation
• Engaged – Built with processes in place for reporting, and adjusting based on reporting
Though public programs geared to Socially and Economically Disadvantaged Individuals (SEDIs)
exist for the purposes of deploying allocated capital to institutions, both to support lending
activities and to support technical assistance for borrowers, no system currently exists for
adjusting after measuring and reporting on the effectiveness of the administration such
programs in relation to their missions. This means that, though a great deal of money is pushed
toward states to support small businesses, there is no system in place to make sure they
continue to fit market conditions. Instead of adjusting current programs to keep them effective,
new programs are formed to meet new needs.
Recommendation: Require development and implementation of a reporting system to measure
the performance, annual progress, and market adaptations of public agencies and entities
responsible for administering capital deployment programs that are geared to SEDIs, covering
allocations for investments, lending and technical assistance (e.g., financing for licensing and
13
Blended rates allow CDFIs to vary their capital sources. I’ll use the State Small Business Credit Initiative (SSBCI) as
an example. So, let’s say that $50,000 loan is for a business in a state whose SSBCI program will guarantee half the
loan amount at 1%. This greatly decreases the lender’s need to rely on the bank’s capital, which it has to pay back
at Prime, and even with a lower rate, the CDFI can offer a lower rate AND turn more of a profit to grow and serve
more businesses.
8
certifications, bonding, financial empowerment tools, HR services, cybersecurity, marketing,
mobile-readiness).
VII. Conclusion
Congress has taken great strides in recent years to increase access to capital for borrowers and
remove roadblocks for our most effective lenders, CDFIs. For mission-led lenders, part of the
end game is disrupting predatory lenders by offering accessible, responsible alternatives. In my
experience, knowledge and innovation are at their most powerful when paired with execution.
It is my hope that from the information gathered in this room from myself and my fellow
witnesses, swift action will follow. Only then can Main Street’s potential truly be unleashed.
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