[Senate Hearing 119-19]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 119-19

                         HEARING FROM LENDERS:
                    MANAGING RISK FOR THE LONG-TERM
                        IN THE 7(a) LOAN PROGRAM

=======================================================================






                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP

                                 OF THE

                          UNITED STATES SENATE

                    ONE HUNDRED NINETEENTH CONGRESS

                             FIRST SESSION
                               __________

                           FEBRUARY 26, 2025
                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship





               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





        Available via the World Wide Web: http://www.govinfo.gov
                                ______
                                
                   U.S. GOVERNMENT PUBLISHING OFFICE

59-473                     WASHINGTON : 2025






























            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
            
                    ONE HUNDRED NINETEENTH CONGRESS

                              ----------                              
                        JONI ERNST, Iowa, Chair
            EDWARD J. MARKEY, Massachusetts, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina            CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana                  CHRISTOPHER A. COONS, Delaware
JOSH HAWLEY, Missouri                MAZIE K. HIRONO, Hawaii
TED BUDD, North Carolina             JACKY ROSEN, Nevada
JOHN R. CURTIS, Utah                 JOHN W. HICKENLOOPER, Colorado
JAMES C. JUSTICE, West Virginia      ADAM B. SCHIFF, California
JON HUSTED, Ohio
                Meredith West, Republican Staff Director
                 Sean Moore, Democratic Staff Director





























                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page
Mr. Timothy Fitzgibbon, Senior Vice President, First National 
  Bank, West Des Moines, IA......................................    15
    Prepared statement...........................................    17
Mr. Raymond Lanza-Weil, President, Common Capital, Springfield, 
  MA.............................................................    19
    Prepared statement...........................................    21
Ms. Itzel Sims, SBA Director and Senior Vice President, First 
  Security Bank, Little Rock, AR.................................    26
    Prepared statement...........................................    28
Ms. Mayrena Guerrero, Founder and CEO, Colorful Resilience, West 
  Springfield, MA................................................    36
    Prepared statement...........................................    39

                           COMMITTEE INSERTS

Ernst, Senator Joni & Williams, Roger, U.S. Representative
    Letter dated April 24, 2024..................................     2
Ernst, Senator Joni
    Letter dated January 21, 2025................................     6

                  ADDITIONAL STATEMENTS FOR THE RECORD

America's Credit Unions
    Letter dated February 26, 2025...............................    56
Ernst, Senator Joni
    Statement....................................................    59
National Association of Government Guaranteed Lenders
    Letter dated February 26, 2025...............................    60

 
                         HEARING FROM LENDERS:
                    MANAGING RISK FOR THE LONG-TERM
                        IN THE 7(a) LOAN PROGRAM

                              ----------                              

                      WEDNESDAY, FEBRUARY 26, 2025

                                   United States Senate,
                                Committee on Small Business
                                          and Entrepreneurship,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:30 p.m., in 
Room 428A, Russell Senate Office Building, Hon. Joni Ernst, 
chairwoman of the committee, presiding.
    Present: Senators Ernst [presiding], Hawley, Justice, 
Husted, Markey, Shaheen, Booker, Hirono, Rosen, and 
Hickenlooper.

               OPENING STATEMENT OF SENATOR ERNST

    The Chair. I call the Committee on Small Business and 
Entrepreneurship to order. Nearly two years ago, we met to 
discuss the reckless new rules the Small Business 
administration implemented for the 7(a) loan program. They 
removed time-tested underwriting standards that mitigated the 
risk of default for American taxpayers who guarantee these 
loans.
    These new rules also opened the door to foreseeable fraud 
by enabling a potentially unlimited number of unregulated, non-
depository institutions to become permanently licensed SBA 
lenders, as small business lending companies, or SBLCs. The 
last administration's 7(a) rules were the most drastic changes 
to the program in decades, which is why members on a bipartisan 
basis voiced their concerns. Unfortunately, those concerns fell 
on deaf ears.
    I aggressively sought to understand how the SBA was 
selecting and approving these new SBLCs to participate in 7(a). 
The types of lenders the SBA was looking to license, fintechs, 
were responsible for facilitating widespread financial fraud 
and improper payments in the Paycheck Protection Program. I ask 
unanimous consent to enter into the record an April 24th, 2024, 
letter that I sent with House Small Business Committee Chairman 
Williams, to the SBA requesting information on the SBLC 
selection process.
    Without objection, so ordered.
    [The information referred to follows:]
    
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    The Chair. Two years later, we still have little insight. 
Even the recent SBA Inspector General's report on the subject 
was woefully inadequate. The IG report stated the SBA followed 
its own procedures, but they failed to evaluate whether those 
procedures were adequate. The IG didn't bother to investigate 
whether there was collusion between SBA officials and one of 
the largest applicants for a lending license, Funding Circle 
U.S., nor did the report answer why the SBA and the IG 
concluded the cash position of Funding Circle U.S. was 
sufficient despite the fact that it was losing millions.
    The Biden SBA's dangerous loosening of the underwriting and 
eligibility rules weren't the only efforts to undermine the 
financial soundness of the 7(a) loan program.
    A year before the rule, the agency started to cut the fees 
charged to borrowers and lenders--fees meant to protect the 
taxpayer from having to subsidize bad loans. For three years 
straight, the SBA cut these fees, inexplicably allowing loans 
of up to $1 million to be made without the borrower or lender 
having to pay for the guarantees the American taxpayer 
provided.
    As I said in a letter to President Trump on January 21st, 
the looming 7(a) fee increases are entirely due to the previous 
administration's incompetent management of the program, which 
has harmed taxpayers and the small businesses saddled with debt 
they can't manage, while irresponsible lenders get paid no 
matter what. I ask unanimous consent to enter this letter into 
the record.
    Without objection, so ordered.
    [The information referred to follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    The Chair. We are seeing the impacts of these rule changes 
with the 12-month default rate more than doubling to roughly 
3.2 percent since these rules went into effect, and defaults on 
loans less than 18 months old nearly tripling to almost one and 
a half percent over that same period. While the Biden Harris 
SBA tried to blame this on rising interest rates, defaults on 
SBA loans have been increasing faster than those in the private 
sector, which is evidence of poor policy decisions.
    It should come as no surprise that for the first time in 12 
years . . . [emphasis] 12 years, the 7(a) program lost money. 
This negative cash flow must be immediately addressed by 
reversing the misguided decisions of the past administration. 
This program was designed to operate with zero subsidy and I 
worry we are on the cusp of forcing taxpayers to foot the bill, 
something we should avoid at all costs.
    I want to commend Administrator Loeffler for her 
recognition of these problems in her day one memo released this 
week, and her willingness to hit the ground running. It is 
clear that the solvency of the SBA's lending programs is a 
major priority for the Administrator, who is committed to doing 
what's necessary to ensure their zero-subsidy status is secure.
    Today's hearing provides an opportunity for us to speak 
with SBA participants to understand their concerns about the 
7(a) program's financial stability. It also allows the 
committee to gather concrete suggestions on ways to reduce the 
risk faced by taxpayers while ensuring the program continues to 
be a resource for entrepreneurs who need assistance accessing 
capital.
    I'd like to thank our witnesses for being here today, and I 
look forward to your testimony. I now recognize Ranking Member 
Markey for his opening statement.

                  STATEMENT OF SENATOR MARKEY

    Senator Markey. Thank you, Madam Chair, very much and thank 
you for hosting this hearing to discuss the government's role 
in connecting entrepreneurs with the funding which they need. 
Access to capital is always a top concern for small business 
owners.
    For 70 years, the small business administration's flagship 
lending program, the 7(a) program, has provided government-
backed loans to small business owners who are not eligible for 
a conventional loan. Without government backing, traditional 
banks would only lend to the biggest, safest businesses in town 
while deeming loans to the smallest as too risky.
    Innovative ideas that benefit communities across the United 
States would never have come to realization. Ideas that start 
in a garage would be thrown away before they can ever get off 
the ground. This is especially true for underserved 
communities, entrepreneurs of color, and women who have an even 
harder time historically getting funding as a result of 
historic discrimination. It wasn't until 1974 that a woman was 
able to get a loan at a bank without a male relative signature.
    Unfortunately, as we all know, discrimination still exists 
today. Black owned businesses are more likely to be denied 
loans or received less money than other borrowers.
    In fact, according to the Fed's small business credit 
survey, in 2023, only 32 percent of black small business owners 
with employees received the funding they applied for, compared 
to 54 percent of white small business owners. This is why SBA's 
lending programs are so critical. They fill gaps. They level 
the playing field. In particular SBA's program, the Community 
Advantage program which is a subset of 7(a), utilizes community 
centered nonprofit and mission-based lenders.
    The program makes small dollar loans with a focus on 
reaching underserved small business owners. While the program 
does not define underserved by race, gender metrics, it reaches 
certain populations better than the traditional 7(a) program. 
For example, in fiscal year 2024, the Community Advantage 
program made 53 percent of its loans to startups, and 43 
percent to entrepreneurs of color. The traditional 7(a) program 
in comparison made only 32 percent of its loans to both groups.
    SBA has a responsibility to address the inefficiencies in 
private lending to support true competition. It is the 
government's responsibility to make sure that there is capital 
for all entrepreneurs regardless of their background. The Biden 
administration understood this. They doubled the amount of 
small dollar loans, maintained a healthy 7(a) loan program, and 
ensured a 99 percent repayment rate, a 99 percent repayment 
rate.
    My witness here today from Massachusetts, Ms. Guerrero, is 
a clear example of an entrepreneur who just wanted to serve her 
community, but struggled to get the funding to do so. She was 
unable to receive funding from her community bank, who is also 
an SBA lender, and she did not have generational wealth to rely 
upon.
    That's where Common Capital, a Massachusetts-based lender 
and SBA's Community Advantage program stepped in. So, thank you 
Ms. Guerrero for taking the time to share your experience with 
the committee. Your story is just one example of why SBA 
programs like the Community Advantage program is so important. 
And I look forward to hearing from our witnesses about their 
experiences with SBA's lending programs.
    And I also want to acknowledge the committee's efforts last 
Congress to codify the Community Advantage program. And I'm 
hoping that we can work together, Madam Chair, on a bipartisan 
basis, not only to maintain the integrity of SBA lending 
programs, but also to ensure that they serve small business 
owners from all backgrounds across our country. Thank you, 
Madam Chair.
    The Chair. Thank you very much, Ranking Member Markey. And 
now I want to extend a warm welcome to all of our witnesses. 
Thank you for joining us today. I want to introduce the two 
witnesses who are testifying today on behalf of the majority. I 
am thankful that these two accomplished community bankers made 
the trip to Washington DC, to share their expertise and insight 
into the SBA's 7(a) loan program with this committee.
    And so, we'll start with my Iowan first, and thank you. 
It's Mr. Timothy Fitzgibbon, who is the Senior Vice President 
at First National Bank from West Des Moines, Iowa. Mr. 
Fitzgibbon started and built the SBA lending business at First 
National Bank, where he has worked since 2017. Previously, Mr. 
Fitzgibbon was the senior vice president at the National 
Council of Higher Education Resources for 12 years.
    And prior to that, he was the director of the Guaranteed 
Student Loan Program at the Iowa College Student Aid Commission 
for more than 14 years. Mr. Fitzgibbon holds a bachelor's 
degree from the best university, Iowa State University.
    And next is Ms. Itzel Sims, and she is the director of SBA 
lending at First Security Bank, headquartered in Searcy, 
Arkansas. Ms. Sims has a 24-year background in SBA lending and 
previously worked at Simmons Bank and Regions Bank. Ms. Sims 
obtained a Bachelor of Business Administration from the 
University of Texas at Dallas. Thank you, again. And I now 
recognize Ranking Member Markey to introduce his witnesses.
    Senator Markey. Thank you, Madam Chair. And I'm pleased to 
introduce our two witnesses who have a business relationship 
and can explain how it works for all small businesses. And I 
would like to add, though, I'm kind of shocked that Mr. 
Fitzgibbon did not go to the finest Jesuit College in Iowa, 
Loras. [Laughter.]
    Senator Markey. I think that Fitzgibbon, somehow, I don't 
know how much they welcomed you home when you didn't go to the 
Jesuit school. Mr. Raymond Lanza-Weil is the president of 
Common Capital, which is a nonprofit community development 
financial institution located in Springfield, Massachusetts. 
Common Capital provides SBA micro loans and community advantage 
loans, as well as technical assistance to small businesses in 
Western Massachusetts.
    Mr. Lanza-Weil's work provides entrepreneurs from 
underserved communities with financing to start and grow their 
business ventures. His team works with borrowers in a holistic 
manner to ensure the success of these small businesses.
    Ms. Mayrena Guerrero is a mental health counselor, and the 
owner and founder of Colorful Resilience, a business that 
provides mental health services to all, but especially to 
people of color, the LGBTQ community, and immigrants. She has 
operated Colorful Resilience for three years. And as a result 
of her entrepreneurial spirit the community advantage loan, she 
now runs a thriving small business with 15 employees, and has 
provided vital mental health services to over 3,000 clients.
    So, it's a perfect example in Springfield of these two 
institutions being able to work together to make sure that we 
have a thriving small business. I thank you Madam Chair for 
welcoming these witnesses.
    The Chair. Yes. Again, thank you to all of our witnesses 
for being here and thank you Ranking Member Markey. Briefly, 
I'd like to take a moment to explain our lighting system there 
in front of you, the little boxes. There are three lights in 
front of you. Green means go. Yellow means you're running out 
of time, and red means to go ahead and quickly wrap up your 
remarks.
    I ask unanimous consent that the witness's full statements 
be included in the record. Without objection, so ordered. As 
your written testimony has been made part of the record, the 
committee asks that you limit your oral remarks to five 
minutes. And with that, Mr. Fitzgibbon, you are recognized now 
for five minutes for your testimony.

       STATEMENT OF MR. TIMOTHY FITZGIBBON, SENIOR VICE
    PRESIDENT, FIRST NATIONAL BANK, WEST DES MOINES, IOWA

    Mr. Fitzgibbon. Chair Ernst, Ranking Member Markey and 
distinguished members of the committee, thank you for the 
opportunity to appear before you today to discuss managing risk 
in the SBA 7(a) loan program.
    My name is Tim Fitzgibbon, I'm a senior vice-president with 
First National Bank, a $1.1 billion community bank based in 
Ames, Iowa, and founded in 1903. I'm testifying today on behalf 
of the Iowa Bankers Association and First National Bank. My 
responsibilities include managing two specialty loan programs-
SBA and student loan refinance, and I'm also a licensed 
investment advisor.
    I'm here today to share my viewpoint, not just as an SBA 
lender, but also a 40-year participant in government backed 
loan programs, including home mortgages and student loans where 
I've spent a good part of my career, helping borrowers manage 
their debt, improve their credit, and avoid default.
    Risk in any loan program is primarily managed through sound 
underwriting policies. Prudent underwriting ensures equitable 
treatment for all applicants and is intended to be a good 
predictor of a borrower's future success. In short, good 
underwriting protects the consumer along with the lender, and 
in the case of the government backed SBA program, the taxpayer 
as well.
    In 2023, new rules were written for the SBA program with 
the admirable goals of streamlining the application process and 
increasing access to funding for small business owners, 
particularly those in underserved communities. Major 
underwriting changes included removing the applicant's personal 
financial resources from the ``credit elsewhere'' test, waiving 
equity injections, reducing insurance requirements, and 
permitting lenders to ``do as you do'' in underwriting SBA 
loans.
    Reducing underwriting criteria to increase loan access is 
not a new idea in federally backed loan programs, but it has 
not always proved wise. A similar approach was used in the 
1990s to increase home ownership through lowered credit 
standards for private market and FHA loans, which contributed 
significantly to the subprime mortgage crisis of 2008.
    A more recent example continues today with the Federal 
Parent PLUS Student Loan Program. Already low underwriting 
standards were further diluted in the early 2010s, to allow 
more families to access the Parent PLUS program, which has 
resulted in countless older Americans becoming buried in debt 
they cannot afford. Originating government-backed loans for 
borrowers who can never repay them is predatory in nature. It 
is imperative that the SBA closely monitor the impact of its 
reduced underwriting standards on the borrowers it serves.
    To that end, early indicators suggests that there are 
already signs of credit stress for SBA loans made under the new 
rules. For example, according to a recent risk assessment by 
the SBA, ``The Small Business Administration's Flagship 7(a) 
program lost hundreds of millions of dollars in 2024 as agency 
fee reductions combined with an increase in loan defaults to 
result in negative cash flow''. Similar analysis done by third 
party service providers, show loans made under the new rules 
are defaulting at a much faster and higher rate than loans made 
in other years, particularly those originated by non-bank 
lenders.
    I'd like to end my statement with a cautionary observation 
based on testimony provided just last year by Administrator 
Guzman in hearings before this committee, where she suggested 
the SBA should restart its direct government lending program. I 
urge committee members to study the current condition of the 
Federal Direct student loan program before considering such a 
move.
    History has shown that direct government lending can lead 
to expensive loan modifications and even debt forgiveness to 
mask non-performing loans. Loan forgiveness does not manage 
debt, it simply passes the cost onto the taxpayer.
    Iowa banks are committed to providing access to SBA 
financing to our small business communities. While we applaud 
efforts to streamline SBA loan processing and expand in a safe 
and sensible manner, the number of small businesses the SBA 
program can assist, we urge Congress and the small business 
administration to restore prudent underwriting standards and 
ensure proper oversight for all of its lending partners.
    I look forward to your questions, and I thank you again for 
the honor of participating in this hearing. And Senator Markey, 
I'm proud to tell you that my daughter's a Loras graduate. 
[Laughter.]
    [The prepared statement of Mr. Fitzgibbon follows.]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chair. Thank you, Mr. Fitzgibbon. Now we will recognize Mr. 
Lanza-Weil, and you are recognized, sir, for five minutes of 
your testimony.

      STATEMENT OF MR. RAYMOND LANZA-WEIL, PRESIDENT,
        COMMON CAPITAL, SPRINGFIELD, MASSACHUSETTS

    Mr. Lanza-Weil. Thank you and good afternoon, Chair Ernst, 
Ranking Member Markey, and distinguished members of the 
committee. I appreciate the opportunity to speak with you 
today.
    I am Raymond Lanza-Weil, recovering banker and president of 
Common Capital, a 35-year-old nonprofit CDFI loan fund based in 
Springfield, Massachusetts. Common Capital makes loans to small 
businesses that can't get the financing they need from 
conventional lenders, such as banks and credit unions. We make 
loans up to $300,000 and we provide no-cost business education, 
and training to our borrowers; Our business assistance program 
is primarily funded by annual grants from the SBAs microloan 
program.
    Common Capital serves a four-county region with 820,000 
residents. Our annual operating budget is just shy of $2 
million. Even though we're a small organization serving only a 
fraction of the state's geography and population, Common 
capital is the leading SBA Microlender and SBA Community 
Advantage lender in the Commonwealth of Massachusetts.
    Since our founding in 1990, we've made over 900 loans 
totaling more than $35 million to small businesses in western 
Massachusetts. All sorts of loans, not just SBA loans, loans 
that have helped create or retain 2200 jobs. At the end of 
2024, Common Capital's loan portfolio totaled $9.4 million, a 
little smaller than First National Bank's. 54 percent of our 
loan receivable were SBA Micro Loans or Community Advantage 
Loans. And by itself, the CA loans, the Community Advantage 
Loans, make up 34 percent of our portfolio.
    Common Capital's lending is high impact and that includes 
our CA loans. 87 percent of our CA portfolio dollars is loaned 
to businesses owned by people with low to moderate income or 
located in LMI census tracts. 73 percent is loan to startup 
businesses, 47 percent to woman owned businesses and 17 percent 
to veteran owned businesses.
    Common Capital was one of the original Community Advantage 
lenders. Since making our first CA loan in 2012, we've made 41 
CA loans totaling $5.3 million with only one loss. The 
Community Advantage program helps us fulfill our mission of 
creating economic opportunities for people with low to moderate 
income by increasing access to capital for the small businesses 
they own.
    For example, here's a story about one of CA loans. Alan had 
worked in construction in rural western Massachusetts for over 
35 years, when in 2018, he had an entrepreneurial seizure and 
decided to open his own timber frame construction business. 
After three successful years, significant supply chain issues 
and higher prices on construction materials resulted in losses 
on a large fixed price contract. But demand for Alan's 
craftsmanship continued to grow, so the business sought 
financing for new equipment and working capital from their 
bank, which was unable to help them due to their recent losses, 
Alan turned to Common Capital.
    The path to Yes, was challenging because the business' 
assets available as collateral were well short of our 
underwriting requirements. Common Capital was able to offset 
the shortfall with an 85 percent Community Advantage guarantee. 
And today, this rural business has retained its six employees, 
hired new ones, and is thriving.
    As you know, and as this story illustrates, regulated, 
financial institutions can't help every business that applies 
for a loan and nor should they. Banks necessarily say ``no'' to 
some applicants in order to protect their depositors and 
shareholders and to contribute to the safety and soundness of 
our financial system.
    Yet, banks and credit unions are our primary source of 
referrals. We don't compete with banks; we support and augment 
their customer relationships. Referring banks keep their 
customers as depositors and continue to provide other banking 
services to these businesses. When we provide a loan to a 
bank's customer, it's a win-win-win.
    Before I conclude, I want to tell you another story. 
Celeste and Jessica had a combined 30 years of experience 
working as nurses in and around Springfield when in 2021 they 
recognized the growing need for home healthcare in their urban 
communities. They responded by starting their own home 
healthcare agency. Celeste and Jessica could not obtain 
financing from a bank due to being a startup and a lack of 
sufficient collateral.
    Once again, common capital turned to the SBAs Community 
Advantage Program to overcome these challenges and help two 
entrepreneurs start a business that is providing essential 
healthcare services and creating jobs.
    Senators, as I wrap up, I want to tell you that too many 
small businesses and business owners that hear ``no'' from a 
bank successfully search online for easy money. It's available, 
it's expensive, and it's harmful to our business community. To 
combat this, CDFIs like Common Capital and other community loan 
funds try to fill the gap. With our help, these small 
unbankable businesses are creating jobs, generating economic 
activity, and paying taxes.
    These small businesses continue to be bank customers and if 
they do well enough, they'll become bank borrowers as well. We 
accomplish this work with support of the SBA. Our continued 
success and the success of the small business community in 
western Massachusetts depends upon the availability of SBA 
microloans and the CA program.
    I urge you to continue supporting the Community Advantage 
Program, to expand it so that more mission-focused lenders like 
Common Capital can increase access to capital, for low to 
moderate income and low wealth entrepreneurs. Thank you.
    [The prepared statement of Mr. Lanza-Weil follows.]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    The Chair. Thank you, Mr. Lanza-Weil, and we will move next 
to Ms. Sims. And you are now recognized for five minutes of 
testimony.

     STATEMENT OF MS. ITZEL SIMS, SBA DIRECTOR, AND SENIOR
     VICE PRESIDENT, FIRST SECURITY BANK, LITTLE ROCK, AR

    Ms. Sims. Chair Ernst, Ranking Member Markey, and members 
of the committee. Thank you for the opportunity to testify at 
today's hearing. My name is Itzel Sims, and I am the director 
of SBA lending for First Security Bank, which is headquartered 
in Searcy, Arkansas. I'm testifying today on behalf of American 
Bankers Association, Arkansas Bankers Association, and First 
Security Bank.
    Small businesses are the backbone of American economy. The 
SBA 7(a) program helps small businesses that might not 
otherwise have access to capital obtain loans so they can grow 
and create jobs. In my 26th year of making loans to small 
businesses, I'm very proud of the work we do at First Security 
Bank, to assist businesses across Arkansas with 7(a) and other 
small business loans. First Security is a privately held 
community bank with a 1.5 billion in total capital, 8.13 
billion in assets and 1,000 employees throughout Arkansas.
    After holding several SBA lending positions, I joined First 
Security Bank and started an SBA lending platform for 7(a), 
504, and express loans. First Security is right now topped at 
top 10 SBA lender in Arkansas. This is in a very important time 
for 7(a) program. Two years ago, SBA lifted the moratorium on 
the number of non-bank lenders that could participate in the 
7(a) program while simultaneously loosening underwriting 
standards for these loans.
    It has experienced increased defaults since those changes, 
particularly in loans originated by non-bank lenders. This 
committee can play an important role in strengthening the 
program so that all lenders make 7(a) loans in a safe and sound 
manner, that helps small business gain access to capital.
    Here are recommendations for improving the program: in 
2023, SBA lifted the moratorium on the number of non-banks that 
can participate in the 7(a) program, granting six new non-banks 
to participate in the program. At the same time, the agency 
also loosened underwriting standards for loans of $500,000 or 
less. This has contributed to rise of default rates.
    Data compiled by Lumos Technologies show that 7(a) loans 
originated by non-bank lenders in 2023 had a default rate of 
8.1 percent in 2024, which is more than double the default rate 
of 7(a) loans originated by banks in 2023. SBA should return to 
the more robust criteria for underwriting 7(a) loans that had 
been in place prior to 2023.
    Moreover, the agency should focus on increasing the number 
of banks that participate in the 7(a) program instead of new 
non-bank entrants. SBA should also reinstate the loan 
authorization as a required document for 7(a) loans. It should 
also reinstate the requirement that 7(a) small business owners 
provide a 10 percent equity injection when a borrower is a 
startup, or when the borrower was purchasing an existing 
business.
    To increase efficiency, SBA should reinstate the franchise 
directory, a valuable resource that assisted lenders with 
determining the eligibility of a franchise for a 7(a) loan 
before it was discontinued in 2023. Although the focus today is 
on strengthening the 7(a) program, the small business lending 
landscape continues to be threatened by the CFPBs 
implementation of Section 1071 of Dodd-Frank. Section 1071 
requires financial institutions to collect and report detailed 
data on each application for small business credit, including 
the race, sex, and ethnicity of the business owners.
    The CFPB Rule expanded the 13 data points required by 
Congress to 81 data points for each applicant for credit. This 
will significantly increase the cost of credit, decrease the 
availability of credit, and make it harder for us to serve 
small business customers. Congress should repeal section 1071.
    In conclusion, we strongly support the committee's goal of 
strengthening the 7(a) program and facilitating small business 
lending more broadly. We urge Congress to ensure that the SBA 
reinstates previous underwriting standards on 7(a) loans, not 
grant additional non-bank licenses without a demonstrated need 
and proof that the agency can effectively supervise new 
entrants, take the actions to improve the efficiency of the 
7(a) program provided in our testimony, and repeal Section 1071 
of Dodd-Frank.
    This would help strengthen small business lending, and 
enhance the ability of banks to make critical loans that drive 
economic growth in our nation's communities. I really 
appreciate the opportunity to testify and I look forward to 
your questions.
    [The prepared statement of Ms. Sims follows.]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    The Chair. Thank you very much, Ms. Sims. And now, Ms. 
Guerrero, you are recognized for five minutes.

     STATEMENT  OF  MS. MAYRENA  GUERRERO,  FOUNDER  AND
      CEO, COLORFUL RESILIENCE, WEST SPRINGFIELD, MASSA- 
      CHUSETTS

    Ms. Guerrero. Thank you. My name is Mayrena Guerrero. I'm a 
licensed mental health counselor and entrepreneur in 
Massachusetts. I am honored to be here and talk about my 
experience with the SBA Community Advantage Loan through Common 
Capital.
    My business is Colorful Resilience, a mental health clinic 
that provides outpatient mental health services to Black 
Indigenous People of Color, Lesbian, Gay, Bi, Trans, and others 
with various sexual and gender identities, immigrants, first 
generation people and our allies.
    What sets us apart, is that our team members represent the 
communities we work with. These brings about cultural 
competency that comes not just from education, but shared lived 
experiences with our clients.
    I hold a Bachelor of Science degree from University of 
Catlica Santo Domingo in Dominican Republic, and a Master of 
Science in mental health counseling from Fitchburg State 
University in Massachusetts. Go Falcons.
    After graduate school, I worked in community mental health 
for three years providing outpatient services. After completing 
the necessary hours and passing the licensing exam, I obtained 
my license to practice mental health counseling independently 
in Massachusetts.
    In 2016, I established a private practice marking the 
beginning of my entrepreneurial journey as a solo practitioner. 
My practice filled up quickly as clients discovered me through 
the PsychologyToday.com providers directory. In my published 
profile, I discussed my therapeutic approach and comfort in 
working with immigrants, people of color, and members of the 
LGBTQ plus community like myself. I quickly noticed clients 
sought me out primarily because of our shared identities.
    In 2020, due to the mental health crisis resulting from the 
pandemic and the Black Lives Matter movement, inquiries for 
services increased from two a day to 20. My practice was packed 
and I wondered where to refer individuals seeking support based 
on identity affinity. I realized then that there was a niche in 
the market that was not being addressed, and that is when the 
idea for Colorful Resilience was born.
    If I were going to do this, it will be done right. My 
company will have multiple practitioners and be the work 
environment I always dreamed of. The humanity of the clinician 
will be front and center because happy and healthy clinicians, 
produce better therapeutic outcomes.
    I will do things differently and go against the industry 
standard. My clinicians would receive a guaranteed bimonthly 
paycheck with a salary that exceed the living wage for our 
county, based on the MIT living wage calculator. A yearly 
inflation raise will be essential to prevent a pay cut and an 
annual productivity raise would incentivize meeting 
productivity goals. Both part-time and full-time Employees will 
have access to health and dental care. Additionally, the 
company will reimburse continuing education credits as 15 CEs 
are required annually to maintain our licenses and now, we're 
in year three and in this year, we're able to offer 401k to our 
employees.
    Burnout is a significant issue in the mental health field 
leading to frequent turnover and a mass exodus from the 
profession. I recognize that establishing reasonable and 
sustainable productivity expectations is crucial.
    Furthermore, supporting and encouraging clinicians to 
attain their private practices is essential for maximizing 
their earnings and increasing representation from these 
communities in the field. In other words, my team members were 
not leaving Colorful Resilience because we were a lousy 
employer, but because they were ready to self-actualize 
professionally.
    So, the idea was there and it was a good one, but I needed 
capital. So, I went to talk to my community Bank of 15 years. I 
sat down with a person from Commercial Lending, business plan 
hand, he listened to me and told me it was an excellent idea, 
but that they didn't fund startups. For them to lend me the 
300K I needed to start my business, I would need to have 
assets, assets that amounted to that much, which I didn't. It 
was the bank who told me about Common Capital.
    I went to Common Capital's website and filled out a simple 
form. Then with a business plan in hand I met with them. They 
supported my idea and told me they would work with me to secure 
the funds I needed to make it a reality. Common Capital helped 
me secure an SBA Community Advantage loan for $250,000 and a 
$50,000 microloan at a six-year term and a 7.5 interest rate.
    In addition to the loans, Common Capital helped us get 
marketing and technical assistance help from a third party, 
contributing to our recruitment efforts. From the very 
beginning, Colorful Resilience has submitted monthly profit and 
loss and balanced sheet reports to Common Capital, helping keep 
us accountable as we go. Common Capital invested in Colorful 
Resilience and we continue to experience and support to this 
day.
    On February 23rd, 2022, Colorful Resilience, LLC became a 
registered business entity, and in August of that year, we 
started seeing clients. Today, according to the Boston Business 
Journal, Colorful Resilience is the 27th largest LGBT owned 
business in the state of Massachusetts.
    We're a profitable company currently employing 15 people 
and on track to hire three more full-time clinicians this year.
    We have about 550 active clients and 3000 people have had 
access to care because we exist. Outpatient mental health is 
primary care. Clients who are adequately supported and at 
outpatient mental health level rarely need to access higher, 
more expensive levels of care like partial hospitalization, 
inpatient, or like a residential program. We keep the cost of 
mental health care down. We don't depend on government grants 
to function and we pay taxes.
    Businesses like Colorful Resilience keep the American 
economy going in the right direction. The SBA Community 
Advantage Loan changed my life and the lives of many others. I 
am grateful that this program exists and was lucky to have 
access to it. Please continue to support organizations like 
Common Capital so that they can make businesses like mine 
possible. Thank you.
    [The prepared statement of Ms. Guerrero follows.]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    The Chair. Thank you, Ms. Guerrero, and thank you for your 
work in mental health, we really do appreciate that as well. So 
now we will move on to the question-and-answer portion of the 
hearing, and I will recognize myself for five minutes for 
questions, and I will start with Mr. Fitzgibbon.
    So, Mr. Fitzgibbon, as you know, the Biden administration 
significantly weakened underwriting standards in the SBA's 7(a) 
loan program. Since those changes were implemented, the 12-
month default rate has more than doubled and the early default 
rate has almost tripled. How important are strong underwriting 
standards to the long-term stability of the 7(a) loan program?
    Mr. Fitzgibbon. Thank you, Senator. I think prudent 
underwriting provides the foundation for long-term stability. 
There are other factors like guarantee fees and so on, but 
they're not as important as underwriting. It's truly the 
cornerstone of managing debt.
    The Chair. Yes, that's good. And Ms. Sims, thank you for 
being here today. The previous administration allowed 
additional non-banks, including fintech firms to participate in 
the 7(a) loan program. So as a community banker, how do your 
underwriting processes differ from those that are non-bank 
lenders, such as fintech firms, and how do these differences 
affect the loan performance in the 7(a) loan program?
    Ms. Sims. Community bankers, we live and we dine and we use 
the services that business owners have. So, we see people, when 
we provide loans, we're not just providing loans to paper, 
we're providing loans to people. So, we try to find financial 
solutions and complement our banking needs through SBA 
programs, depending on how much assets they have, how much 
capital they need.
    And so having that availability through the SBA program is 
imperative for us. The credit underwriting is the same for SBA 
lending. We still have to make sure that the loan can be repaid 
back, but a lot of times our entrepreneurs need education. They 
need to know how much debt they need to have; they need to have 
a budget. I like to say the saying, if you don't plan, you plan 
to fail.
    And a lot of times these business owners need guidance from 
us as a community banker to be able to either say, hey, you 
need to start with us, or they may need to start with a 
Community Advantage lender just to get started. So just being 
there to educate the client makes us very different than 
fintech, which is where my concern is.
    Fintech is more about a predatory approach and trying to 
just give money as fast as they can. And they don't really see 
them as human. They just see them as another source of 
financing and getting rates. So that's where my concern is the 
most, is the fact that they're taking the human approach away 
from community banking when you allow fintech to take over.
    The Chair. Yeah, I do appreciate that support. Thank you. 
And Mr. Fitzgibbon, the SBA has had four straight quarters of 
negative cash flow. Over roughly that same period upfront 
borrower fee revenue has decreased by 13 percent while loan 
purchases, which occur when SBA has to buy a defaulted loan 
from a lender have increased by 73 percent. How concerning are 
these trends and what steps need to be taken to ensure that the 
7(a) program continues to operate at zero subsidy from the 
taxpayer?
    Mr. Fitzgibbon. Well, thank you, Senator. I mean, four 
quarters of data is you can't draw every conclusion from four 
quarters of data, but it's all we have, and it is alarming for 
the comparison to the other vintages. So, I think looking at 
borrower fees is probably, and lender fees and reintroducing 
them is probably necessary.
    I would say that the cost of inaction is high, because 
regardless of the cost of the taxpayer, every loan that 
shouldn't have been made those defaults, ruins the financial 
life of that small business owner. And so, you could take a 
wait and see approach for the year and see if things normalize, 
but I think there's a human cost to that, that to me seems 
unadvisable.
    The Chair. Okay. Thank you. And now I would like to ask a 
question to all the lenders on the panel. Over the last five 
years, we have seen a dramatic expansion in the use of lender 
service providers or LSPs by SBA lenders. These LSPs assist SBA 
lenders by referring processing and servicing loans and are 
often increasing the volume of SBA lending.
    Does your company utilize an LSP and could you just talk 
about the proper role of an LSP in assisting SBA lenders and 
Mr. Lanza-Weil I'll start with you first and then we'll go to 
the other lenders.
    Mr. Lanza-Weil. Well that's easy: No, we don't.
    The Chair. Okay. Thank you. [Laughter.]
    The Chair. Mr. Fitzgibbon.
    Mr. Fitzgibbon. We don't use them. I think they play a 
helpful role if the lender that they're partnering with has 
good guardrails. But I think in combined with a fintech lender 
that it's all about churning volume, I think that they can be a 
part of the problem.
    The Chair. Okay. Thank you, Ms. Sims.
    Ms. Sims. Starting an SBA department in a community bank is 
daunting. It's a difficult task. And so, it can be very 
alluring to look at an LSP. I looked at it at one time when I 
was starting the department, but it's really difficult to keep 
consistency of your culture of who you are as a bank when you 
outsource it to somebody else. Keeping that consistency and 
also keeping the culture of your bank is out of your control.
    And a lot of times the customer experiences very bad 
customer service because they're not only dealing with us, 
they're also dealing with the LSP. If it's sold in the 
secondary market, they're not able to renegotiate their 
interest rates. So, they're also putting some guardrails on 
that. So LSPs do have a sense of purpose, don't misunderstand 
me, but they can also abuse that situation. So, we do have to 
enter that cautiously when using LSPs.
    The Chair Okay. Thank you, that's very helpful.
    Ms. Sims. And we do not use LSPs, by the way.
    The Chair. Okay. Thank you very much. I appreciate that. I 
will turn it now to Ranking Member Markey for your questions. 
Thank you.
    Senator Markey. Thank you so much. And so great news, 
really, really, really great news. In the United States last 
year. Last year, the Biden administration, 886,000 jobs 
directly related to 7(a) were either created or retained, great 
number. Another great number in Donald Trump's last year before 
Covid 2019, the 12-month default rate on 7(a) program 2.75, 
percent last year the last year of the Biden administration, 
2.76 percent default rate.
    Now, we do admit that the default rate did go down to 1.32 
percent at the height of COVID, but that was because of this 
great committee's work, passing the PPP program, passing the 
EIDL program, we were actually able to lower the default rate 
because of our actions to help those small businesses.
    But it's returned to normal, Trump 2.75 percent Biden 2.76 
percent. So, we'll give Trump the win there by one 10th of 1 
percent. Okay. He wins in that one category, but let's just say 
we're back to normal in terms of the 7(a) program and we should 
be very, very proud of the work that all these business people 
are doing out there.
    This SBA Community Advantage program has demonstrated 
success in making small dollar loans to small business owners 
that struggle. We see this story here in Springfield, 
Massachusetts. We see the lender and the recipient creating 
some capitalist magic that otherwise would not exist.
    And these lenders don't just provide loans: they provide 
financial help, marketing help, technical assistance that 
otherwise Ms. Guerrero and people like her, all across the 
country creating 886,000 jobs would not otherwise have. Which 
is kind of this brilliant construct that we have. So, Mr. 
Lanza-Weil, you say in your testimony, we lent to people, not 
to paper. Can you explain how common Capital's approach to 
making a loan to small business contrasts with a conventional 
lender.
    Mr. Lanza-Weil. Absolutely. We're a high touch lender. It's 
all about building a relationship with a borrower, with an 
applicant. You know, my first day on the job as a bank trainee 
in 1986 an old-time lender who smelled like cigar smoke, pulled 
me aside and said, you got to know this, know your borrower, 
it's the first rule of lending.
    And I think sometimes in larger institutions, and certainly 
in fintech, which I'm not here to bash, we lose sight of that. 
I think Ms. Sims referenced it as well, building a relationship 
with an applicant, getting to know that person as a human 
being, getting to know them as something beyond the paper on 
which their credit report is printed is so important. And we 
invest a lot of time. It's inefficient, it's slow, it's high-
touch, and it's highly effective.
    Senator Markey. I agree with you. When I needed student 
loans, I was sitting next to my mother and father at the First 
National Bank in Malden, and Mr. Wentworth the banker, he said, 
Mr. and Mrs. Markey, you paid every month on the mortgage, so 
we trust you. So, we'll give the loan. There you go, high 
touch, they knew the customer.
    So, Ms. Guerrero, talk about how Mr. Lanza-Weil and his 
operation was able to help you.
    Ms. Guerrero. Gladly. Common Capital has been just super 
helpful. The truth is that I really don't know how we would 
exist as a business if Common Capital and the SBA Community 
Advantage Loan program was not available to us.
    I like the fact that the support that we received from 
them, I mean, you told me earlier there were nine people in 
your team. I really don't know the nine of them, but I know six 
of them by name. And I know how to get a hold of them for 
questions or anything like that. And that is just that 
relationship that I don't have with my community bank.
    Senator Markey. And so, give us one quick example, if you 
can, of something that they could help you to do that you 
would've had no capacity as a startup or small business.
    Ms. Guerrero. I mean, exist, sincerely, Senator, who 
would've given me the--okay, my other option to get the money 
to start my business would've been a predatory lender that 
would've given me a really high interest rate in terms that 
were really not conducive to profitability. So, it's as simple 
as that.
    Senator Markey. And you could have found them in 
Springfield, Massachusetts.
    Ms. Guerrero. Oh, of course.
    Senator Markey. The predatory lending?
    Ms. Guerrero. You can find them anywhere.
    Senator Markey. Oh, yes. So, you are just a perfect example 
of a wonderful system creating 886,000 jobs that is working 
with the default rate equal to the Trump years. Okay. Which is 
just an incredible achievement. So really helps to show how 
America can be great in helping startups to get over that 
financial hump.
    The Chair. Thank you, Ranking Member. And I do want to 
stress, it's the early defaults are really the issue that we're 
getting at today. The last three years, loan defaults are 
rising faster than pre COVID levels. And the program is losing 
money for the first time in a dozen years. So, it is something 
that we do need to scrutinize and we need to understand why 
this is occurring. So, we will go next to Senator Husted. You 
are recognized for five minutes of questions.
    Senator Husted. Thank you very much. Welcome to all of you. 
Thanks for being here today. I have a background overseeing a 
small business development center. I have a background on the 
board of a community bank, where I was on the loan committee, 
and I know how much our regulators scrutinize what loans we do 
make and what loans we don't make.
    And that this is--the community banks around the country 
are very close to their customers, and they know these issues 
quite well. But what I don't know well, I've only been a 
senator for four weeks. [Laughter.]
    Senator Husted. So, I'm, I'm trying to catch up on all the 
things that have happened in the past, and I know Mr. 
Fitzgibbon and Ms. Sims, you talked about rule and fee changes 
that had happened under the Biden administration, and I want to 
understand that better, and how that impacted the 7(a) program 
and just what the exposure and the risk of that.
    So just help educate me a little bit more about what that 
means, what the impact is, Mr. Fitzgibbon I'll talk, start with 
you.
    Mr. Fitzgibbon. Thank you, Senator. So, briefly, the rule 
changes reduced the underwriting criteria, and over the last 
couple of years the guarantee fee and the lender fee were 
waived up to, I believe it's a million dollars, no guarantee 
fee to the borrower up to a million dollars, this year it's no 
lender fee up to $500,000. So those are fees that support the 
program in a sense, it's skin in the game for the borrower. 
Those have been waived for a couple of years.
    The concern is that the lessened underwriting criteria has 
resulted in loans being made that shouldn't have been made and 
that's what's driving up delinquency and default rates.
    Senator Husted. Okay. And Ms. Sims.
    Ms. Sims. So, when you get insurance, you have to pay a 
premium to have insurance. So, you think of the government 
guarantee in that sense, is that typically when you're asking 
for a government guarantee, it's protection on the loan for the 
bank.
    And so I've been an SBA lender for my entire career, and 
I've seen the fees my entire life where, you know, SBA has 
provided this guarantee, this insurance to the lender, AKA, the 
customer gets this insurance as well, there's protection on 
their side, so there's benefit for the customer on that side, 
but typically, because we don't want this to be a burden on 
taxpayers, they self-fund through these fees.
    And so that's, really important to understand that we don't 
want the fees to be inappropriate, but we also want to make 
sure that they're not impacting the taxpayer money.
    Senator Husted. So, you, so summary, you think that would 
improve default rates and it would help sustain the program so 
that it's not a burden.
    Ms. Sims. So, sustainability is the key, right? We want to 
make sure it can be in the black. We don't want it to be in the 
red. So, if we see that there's problems there, we got to see, 
we got to reevaluate the situation when it comes to you know, 
the underwriting, that's something else that I've never seen, 
what we call the SOP dramatically change, to ``do what you 
do'', that's the rule. And makes it very complicated to know, 
because I, as a community bank can operate differently than 
another community bank.
    And having the regulations so loose, if you do what you do, 
also doesn't provide what I call a level playing field. And so 
that's important to also understand is that the SOP has 
changed. And now if you feel comfortable providing loans that 
are what I would say, not prudent, then you're allowed to do 
that because you are not regulated in the same way as maybe a 
community bank that has higher regulations.
    Senator Husted. Great. Mr. Lanza-Weil, do you have a 
thought on that?
    Mr. Lanza-Weil. Thank you, Senator. I don't know much about 
the fees. What I do know is about underwriting standards. We're 
required to maintain our underwriting standards even when the 
rules change in the SOP, the standard operating procedures. I 
think what we are hearing is that there are some lenders that 
haven't followed their own prudent underwriting guidelines. And 
that's perhaps not the fault of the program, that's the fault 
of the lender.
    So, I'd be cautious about throwing the baby out with the 
bath water. Our default rate hasn't changed, and among all the 
CDFIs I know, the default rate hasn't changed because we're 
very focused on making good loans in our market. It sounds as 
if there's a lot of lenders out there that aren't doing that. 
And they should have more guidance and be more careful. And I 
would hate for their imprudent lending to harm our prudent 
lending.
    Senator Husted. Okay. Thank you.
    The Chair. Thank you, Senator. Senator Rosen.
    Senator Rosen. Thank you. Chair Ernst, Ranking Member 
Markey, and thank you all for being here and just spending, 
well, of course, your life working with small businesses and 
for your work really in the mental health space, it's so 
needed.
    And I'm going to give a little bit of a plug here for 
Nevada's credit union and community banks, I know them all so 
well. And I will say during the COVID crisis, but all the time, 
like you said, they're in the neighborhood. These are their 
friends, their neighbors. They know people have a relationship 
with them. They know if maybe a family emergency happened and 
they can't pay something now, and they'll pay it later. And 
they really want to see communities thrive. So, I just know the 
importance of this kind of lending and that special touch that 
you can give it. It's very meaningful.
    And so, I think we can all agree that the 7(a) program, 
it's a vital source of funding for our small businesses. And 
Nevada business have received over 700 loans totaling $355 
million just last year alone of 99 percent of businesses in 
Nevada, or small businesses, by the way. Although we're known 
for those big casinos, 99 percent are the small businesses. But 
it should be a shared bipartisan priority for the program, like 
you say, to run as efficiently as possible.
    And you know, I'm really thankful for your testimony so 
far, but it's not surprising that loan defaults delinquencies, 
they're more likely in times of economic uncertainty. And small 
businesses may face declines in sales or subsequent cash flows, 
mental health, of course I think you're going to stay pretty 
steady there. But similarly, poor economic conditions can put a 
strain on lenders who may be tightening their criteria and they 
reduce their loan volume.
    And so, we might look at looming tariffs, unreliable 
federal funding, economic uncertainty. It's critical we 
understand, again, the impact it's going to have on all of you. 
So, Mr. Lanza-Weil, can you discuss how the broader economic 
picture in this country is going to, in fact, affect maybe the 
borrower's loan performance and your lending activity?
    Mr. Lanza-Weil. Thank you, Senator. I think you said the 
word already, it's the uncertainty. The uncertainty that's 
existing in the marketplace today because of so much rapid and 
chaotic change is making it hard for us to plan. I don't know 
what the SBA's budget will look like next year. None of us do, 
obviously. I hope it's robust. But as we begin planning for our 
next fiscal year, we don't know how much money we can count on 
for an SBA grant that supports the business assistance that is 
so critical to supporting entrepreneurs like Mayrena.
    The business education and training that we provide is 
focused on helping people create and understand and use their 
financial statements and the management of their business. 
Mayrena knows how to be an exquisite mental health counselor, 
but probably didn't know much about QuickBooks before she came 
to us, or how to market her business.
    Senator Rosen. She learned pretty quickly us, and then 
that's what we're going to ask. How's the business environment 
impacting you and the uncertainty impacting you? You're working 
together, giving her the training, the resources, understanding 
how to be successful. How are you feeling in this moment?
    Ms. Guerrero. Well, it is true that the need for mental 
health services is there, but it's also true that the economic 
landscape is making--for example, I'm noticing that my clients, 
instead of booking weekly, they are booking biweekly because 
they can't afford the copay, or they have a hard time affording 
the deductible. Or like, people are losing their jobs, which 
means that they're losing access to healthcare. Or there could 
be like an executive order like freezing government funds, 
which affects Medicaid and Medicare, and that's 20 percent of 
my income. So definitely there's an impact in my business.
    Senator Rosen. Well, I want to go back to something you 
just mentioned. The importance of the SBA resource partners, as 
we see, it makes you successful. You're a great counselor, but 
maybe you didn't know QuickBooks when you started. And so, we 
have to bring that critical support and the training for our 
small business owners, from veterans' business outreach 
centers, small business development center, women business 
centers, and the like.
    I was so proud to bring the first ever Veterans Business 
Outreach Center to Nevada. We have almost a quarter million 
veterans in Nevada, very entrepreneurial. And really provide 
that tailored support and that free counseling, that technical 
assistance so that they can do what they do. And I know I have 
a short time left.
    Can you talk Mr. Lanza-Weil about the importance of this 
financial management counseling? I know all of you could really 
speak to this, but that's a big part of what you're helping a 
small business owner do, and how critical it is that we keep 
these resources flowing or their success and payback of the 
Loans.
    Mr. Lanza-Weil. Absolutely. Many of our applicants and 
borrowers have received services from our local small business 
development center network, and from our Women's Business 
Resource Center, which is the Center for Women in Enterprise, 
which serves all of New England and has had to lay off some 
staff already, because they are not getting the federal funds, 
they need on an ongoing basis to pay their staff to provide 
services to small businesses.
    The way we mitigate risk in a community development 
financial institution is with hands-on business assistance and 
training. By making Mayrena a better business person, she's 
also a better mental health counselor, and a better, a more 
sustainable and viable business in the long term.
    And at this particularly uncertain time, if the economy 
worsens, banks will tighten their lending as they always do. 
And CDFI loan funds, which are countercyclical, we'll see an 
increase in demand. And that increase in demand means that 
we'll need more help from our service partners to serve the 
businesses that we're able to make loans to.
    Senator Rosen. Well, thank you. I do believe small 
businesses are the engine of our economy in every state. Thank 
you for having this hearing, Madam Chair, and we need to 
continue to invest in the good work that you're doing. Thank 
you. Great.
    The Chair. Thank you, Senator Rosen. Senator Booker, you 
are recognized.
    Senator Booker. Thank you so much. I was excited to get on 
this committee when I got here, because I spent so much time as 
the mayor trying to get more access to capital for businesses 
in the City of Newark. And we were able to see an explosion 
during a recession, of new investment into our city, 
entrepreneurs succeeding. It was one of the best experiences 
that I got on this committee and it's been one of the better 
bipartisan committees that I've had here, and just finding ways 
because all of us know in our states, there's so much 
investment worthy people.
    I remember the now Secretary of State and I working 
together in the midst of the pandemic when the PPP loans coming 
out. But we found an arbitrary rule that disbarred people who 
had been justice involved returning offenders.
    They'd had to be out of for five years before they could 
qualify for a PPP loan, that was arbitrary and just dumb. And 
my Republican colleagues agreed, and we got it fixed under the 
Trump administration.
    So, it's just a great environment for us to continue to try 
to do good work. I'm a big person who believes in 
entrepreneurialism and the power for communities of capitalism, 
the double, triple, quadruple bottom lines that we find.
    And so, I just want to jump into some areas really quickly. 
One concern having had so much experience with Microloan 
programs inspired by the Grameen Bank in my community I'm 
really worried that we've had, you know, 15 years of mission-
based lenders through the Community Advantage program that have 
worked closely with small businesses to help them get the 
capital they need, which is often small.
    But in January, the SBA announced it would increase the 
loan maximum up to half a million dollars, which I think is 
going to have a really stunning impact. And right now, I'm 
hearing from lenders that they haven't had communication, 
really from the SBA on whether they can offer increased loans 
to small business owners. There's a lot of delay going on.
    I got an extraordinary note from a small business lender in 
New Jersey, ``Last week, we had to decline a loan request from 
a farmer in Mullica Hill, who sought to expand his seasonal 
open-air farm into a larger year-round operation. The business 
was doing well despite its seasonal limitations. His goal was 
to provide his community with high quality produce plants and 
specialty groceries year-round instead of in his current just 
five-month operation.
    However, during our review, we determined that he required 
more than $350,000 to complete renovations, purchase equipment, 
and secure the necessary working capital for successful 
expansion. He was concerned about the risk of 
undercapitalization. We had to decline the request. Given his 
limited collateral, securing traditional bank financing would 
have likely been a challenge for him. We believe the borrower 
needed Community Advantage 7(a) loans of at least $450,000.''
    So, it's disappointing that small businesses in New Jersey 
are missing out on opportunities with these larger loan 
possibilities. And so just I'm hoping you shed some light on 
this, Mr. Lanza-Weil, have you been able to offer increased 
loan amounts in addition to the small ones that you're probably 
very familiar with? what would the impact be for your business 
folks?
    Mr. Lanza-Weil. For a long time, Senator our loan limit has 
been only $300,000. So, there's not been an effect in the past 
for the changes in the loan limits. But we'd like to raise our 
loan limit internally for all sorts of loans. And we find that 
most of our larger loans, and a larger loan for us is a loan 
over $75,000, our people coming to us with insufficient 
collateral.
    So, if we're going to raise our loan limit, we need an 
increased loan limit on the Community Advantage program in 
order to be able to continue to help low asset and low wealth 
individuals.
    Senator Booker. So, I just think there's a lot of common-
sense fixes. I have some other questions I'm going to ask for 
the record that I don't think we'll be able to get through and 
the chairwoman is just rough on me. She particularly picks on 
New Jersey. So, I'm going to ask some questions for the record. 
I hope that you all will respond.
    I want to thank the four of you because I know your heart 
and your determination, you do this work really to see 
communities' flourish. And it means a lot to me that you would 
come down here and testify before the United States Senate. I 
know time is money, as you all know that, so it means a lot to 
me that you're here.
    But I hope you'll be as the hearing is open, I hope that 
you'll be responsive to some of the other questions I have that 
I think can really inform this committee, which I hope 
continues its record of just working in a bipartisan manner to 
help folk out. So, thank you.
    The Chair. Thank you. Senator Booker. My ears perked up 
when you said farmer?
    Senator Booker. I know.
    The Chair. I was so invested in----
    Senator Booker. It's fourth largest industry. People don't 
think it is the garden state, you know.
    The Chair. In New Jersey, folks. [Laughter.]
    The Chair. Thank you, Senator Booker. Now we will recognize 
Senator Hirono for five minutes. Thank you.
    Senator Hirono. Thank you, Madam Chair. I just happen to 
have met with some farmers from Hawaii, and they have unique 
challenges because we are in the middle of the Pacific, and 
there are all kinds of invasive species, including axis deer. 
And, you know, people don't know that we have, yes--sheep and 
others, but be that as a it may.
    I think in you, Madam Chair, we have somebody who supports 
the that we can give from SBA, particularly to entities such as 
farmers and the people in rural areas. For Mr. Lanza-Weil, I 
just heard you say that you would want the loan limits to be 
raised, what is the loan limit that you are working with right 
now?
    Mr. Lanza-Weil. I believe it's $350,000.
    Senator Hirono. And that you would like that raised to 
what? And it requires the Congress to raise that limit?
    Mr. Lanza-Weil. I don't know who requires to raise that 
limit. Okay. But 500,000 would be helpful to us.
    Senator Hirono. Is that because based on your own 
experience, that the amount of the kind of loans that people 
requests are more in the 500 range as opposed to the 300,000 
range?
    Mr. Lanza-Weil. Senator, we see when they come to us with 
our $300,000 loan limit, we see them scaling their plans and 
their ask to what they think they can get from us. If we had a 
higher loan limit, then they might reach further for the stars. 
And of course, everything's gotten more expensive over time. 
That's just the nature of money and time together, the time 
value of money, I think they taught us in in business school. 
So, our $300,000 loan limit has become somewhat obsolete. And 
$300,000 doesn't necessarily help launch many small businesses. 
We need to see more resources for that.
    Senator Hirono. I saw Ms. Guerrero, you are nodding your 
head, you would agree with loan limit issue?
    Ms. Guerrero. Definitely. I could have used $500,000 at the 
beginning of my business. And the reason why I say this is 
because I got that $300,000 from Common Capital, and about two 
years later, I needed an additional $100,000 from another 
lender. So, if I would've had that money from the beginning, 
that would be much easier for me.
    Mr. Lanza-Weil. If I may, Senator, excuse me for 
interrupting. As Mayrena said, as a business grows, if they 
outgrow us, at least in Western Massachusetts, there's not 
another resource. We need to have more resource so we can help 
the businesses as they grow, not just as they establish.
    Senator Hirono. Oh, that certainly makes a lot of sense. 
Ms. Guerrero, you got your loan through the Community Advantage 
program, which was created frankly not too long ago, and it was 
started as a pilot program. Could I ask, how much was your loan 
from the Community Advantage program?
    Ms. Guerrero. The Advantage Program gave us $250,000. And 
then I had an additional 50 grand microloan.
    Senator Hirono. So, without the Community Advantage program 
that you would have had a hard time getting your business off 
the ground?
    Ms. Guerrero. It would not have happened, Senator, because 
I wasn't going to fall prey of like predatory lending.
    Senator Hirono. How are you doing now?
    Ms. Guerrero. Oh, we are doing really well. We're really 
excited. I must say we're in conversations with Boston Impact 
Initiatives, which is a venture capital sort of firm that works 
with minority owners. And they're going to do a structured 
equity deal with us and just give us money so that we can have 
doubled the workforce that we currently have. So, we're about 
to grow significantly.
    Senator Hirono. Congratulations.
    Ms. Guerrero. Thank you.
    Senator Hirono. I really wish you the best. Mr. Lanza-Weil, 
then can you speak a little bit more about the importance of 
community lenders, because community lenders in a state like 
Hawaii, very important, but that's where your experience lies. 
Can you talk a little bit more about how important these kinds 
of lenders are in your----
    Mr. Lanza-Weil. Absolutely. I think any high touch lender 
is very important. I started my career at a community bank in 
the San Diego area. To the extent that the bankers on either 
side of me are community lenders who have a high touch 
approach, I think that's very important.
    I think on the continuum of credit, we need everything from 
community lenders that are certified CDFIs and other community 
loan funds on through to community banks and credit unions. 
It's the know your borrower conversation, that I think perhaps 
you weren't in the room for yet, Senator. The first rule of 
lending is-know your borrower. Smaller banks, community banks 
and community loan funds get to know their borrowers, and that 
enables them to say yes more often and to manage the risk when 
they do say yes.
    Senator Hirono. So, for the two witnesses who are sitting 
to the left and right of you, are you both community lenders?
    Ms. Sims. Yes. I'm an SBA lender that works for First 
Security Bank, and we're community bank.
    Senator Hirono. So, you certainly would agree that 
community lenders like yours very important.
    Mr. Fitzgibbon. Yes. Senator, we're community bank in the 
middle of Iowa.
    Senator Hirono. Thank you. Thank you, Madam Chair.
    The Chair. Thank you very much. And I think we'll go ahead 
and wrap our hearing. Okay. I want to say thank you so much for 
the witnesses for being here today. This was a very productive 
conversation. Really appreciate your time and input to the 
committee today.
    And I ask unanimous consent that the record of today's 
hearing remain open for two weeks for members to submit 
questions, revise and extend their records, and submit 
additional information into the record. Without objections, so 
ordered. And with that, the Committee on Small Business and 
Entrepreneurship----
    Senator Markey. Can I make a closing statement? Okay. 
Please, you'll like it, I promise.
    The Chair. Oh, we will allow. Proceed.
    Senator Markey. Thank You. Just want to say that the 
Community Advantage Program was a pilot program and is still 
not law. And the Senate Small Business Committee, in its wisdom 
in 2023, passed out of this committee by 18 to one, the 
codification of the Community Advantage Program. It was blocked 
on the floor by Senator Paul, which is a common fate for many 
pieces of legislation, I might say. But we could work together 
once again, to try to try to pass that bill.
    And I just wanted to note that even in early defaults, it 
was 1 percent during the Trump administration back in 2019, and 
it was 1 percent last year in the Biden administration. And it 
went down lower actually, because of PPP and--but even the 
early default is kind of just returning to where it was before 
COVID.
    And the 7(a) loan program is healthy. 99 percent of loans 
are being repaid despite the short-term increases in the 
default rate. This rate is actually normalizing back to pre-
pandemic levels, which is great. And I just want to go back to 
Mr. Wentworth at the First National Bank of Malden.
    I remember sitting there, it looked a lot like you. Well, 
Mr. Wentworth really didn't look like you, Mr. Lanza-Weil, if 
you know what I mean. But the earlier generation, those old 
waspy bankers in New England, in that small city. And my father 
drove a truck for the Hood Milk company, and my mother was very 
mad at me for losing the full scholarship. You know, that I 
should have studied harder, she said, and we are sitting there, 
and my mother said, take out as much money as you want, Eddie, 
because you're going to pay it back, not your father. He's not 
going to take a second job.
    And I was in Congress at age 30, and because I went to the 
school at Boston College Law School, I was elected at age 30. 
Those loans helped; my father's a milkman. And I was paying 
back the student loans for six years as a member of Congress. I 
was the poorest member of Congress, all I had was student debt 
and my car payments. I had no other assets, but he knew his 
lender. I mean, he knew his customer, he knew who he was 
loaning to. It was my mother and father, and they would make 
sure I paid it back.
    So essentially, that's the essence of who you are. You're 
giving people who maybe the rest of the world can't quite see 
as well as they could, but because you know them and you trust 
them, you make them work at the same level as other businesses 
that maybe have those pre-existing relationships. So, I thank 
you so much, Madam Chair.
    The Chair. And witnesses, stay put. We had one member sneak 
in before the fall of the gavel. So, Senator Hickenlooper, you 
are recognized for five minutes.
    Senator Hickenlooper. Thank you, Chair and I appreciate you 
allowing the meeting to extend. I appreciate your indulgence. 
This is something I really care about, but in a previous life, 
seems like several lives ago, I came in as a new governor in 
Colorado, and we did a bottom-up economic development plan.
    We went to all 64 counties, got everyone to write an 
economic development plan of what did they see in 50 years for 
their community, what should the state do to get there? And we 
took all those together and we made something, we called the 
bottom-up Economic Development Plan. And it was amazing how 
universal the vision was. Some was obvious, cut red tape and 
needless bureaucracy. Sometimes it was, get a better workforce 
training, stop marketing the state for skiers, but for 
entrepreneurs. But one thing we heard everywhere was to find 
ways to get better access to capital, for people trying to 
start small businesses.
    So, Mr. Lanza-Weil, I guess I'll start with you. This 
Community Advantage program of expanding access to capital for 
underserved communities. I mean, it supports so many 
entrepreneurs in a variety of small businesses and helps them 
in accessing capital. In many cases, they wouldn't be able to 
find that capital anywhere, they're not from a community that 
has a lot of family money or friends and networks already in 
place.
    So how has the Community Advantage program made it easier 
for Common Capital to reach some of these underserved 
communities?
    Mr. Lanza-Weil. Thank you, Senator. I recall you were in 
the brewery business, is that correct?
    Senator Hickenlooper. I was a brew pub, so it was a really 
a restaurant, but it had a brewery inside of it.
    Mr. Lanza-Weil. When three of our 41 Community Advantage 
borrowers have been micro-breweries.
    Senator Hickenlooper. Oh, get out. Really. Who knew?
    Mr. Lanza-Weil. It's true fact. Every single one of our 41 
community Advantage borrowers came to us with a weakness that 
we could not overcome through our standard underwriting. It's 
almost always a lack of collateral.
    We have people that have saved money for years to have 
their 10 percent equity injection. They've gotten the 
experience they need in their industry. They have a good 
business plan that's reasonable and achievable. They're buying 
assets in some cases with their loan, in the case of Mayrena, 
it was couches and clocks. In the case of a microbrewery, it's 
some hard assets that have more value, but every small business 
that forms it starts up needs working capital. And that doesn't 
act as collateral on its own.
    So, we've needed the CA program to help bridge the gap when 
we've had a collateral deficiency. And I want to make clear 
Senators, that that doesn't cover the whole thing. The 
guarantees only 75 or 85 percent, or in one exceptional case, 
90 percent. We're still taking risk in the formation of that 
business, as is the entrepreneur who's put everything they have 
into it. And if it weren't for the Community Advantage Program, 
we wouldn't be able to make many of those loans. Mayrena 
expressed already that her business wouldn't exist without it.
    Senator Hickenlooper. Yes. I appreciate that and I salute 
you for all that work. I--all of you really, when I read the 
docket last night, it was really impressive. Mayrena, obviously 
the small businesses are important, not just for the 
entrepreneurs and not just for the employees, but for the 
communities they serve. In many cases, they serve a niche. And 
one of the wonderful things about small businesses in 
underserved communities, people live there. They know what the 
niche is, they know what the community needs. And I think 
that's an advantage that many businesses don't have.
    You've talked about how the SBA programs helped you start 
your business of Colorful Resilience--love the title. We 
entrepreneurs spend our lives thinking of good titles, good 
names but I love the notion of Colorful Resilience in terms of 
mental health. It's a very powerful image. How would you 
describe the impact of your business on your community?
    Ms. Guerrero. Well, huge really, because the communities 
that we serve, the BIPOC, LGBT, first Generation immigrant 
communities, have just historically been underserved, just 
forever. And that gap became greater after the pandemic. And 
so, we all know that there's a mental health crisis. There's a 
lack of providers for the demand of mental health services. So, 
our existence and that cultural competency that comes from 
working with providers that have shared identities, has been 
huge. It's a huge impact in the community.
    For example, my marketing budget is $80; $50 for my 
website, $30 for my Psychology Today directory. Why? Because 
clients come to me. I don't go looking for them. So that tells 
you the impact that it has in the community.
    Senator Hickenlooper. Absolutely. Amazing.
    Mr. Lanza-Weil. Senator, may I add to that please?
    Senator Hickenlooper. You have to talk to the chair because 
I'm out of time.
    Mr. Lanza-Weil. Madam Mayrena's business is not the only 
culturally competent and focused mental healthcare business 
that we financed. And we have, I think, a total of five mental 
health therapy businesses in our portfolio. But Mayrena's and 
one other are very much focused on people of color and others 
that have been traditionally underserved.
    Senator Hickenlooper. It's a great example. I'm so glad you 
guys could find time to come here. And I will watch, I've been 
running around, but I'll watch the videos tonight to catch up. 
Anyway, I yield back to the chair. Thank You.
    The Chair. Thank you. Senator Hickenlooper. Okay, we're 
going to try this again. Thank you very much. To our witnesses, 
thank you again for being here today, really productive 
discussion. Thank you for making it in right before the fall of 
the gavel.
    So, at this time, I will ask unanimous consent that the 
record of today's hearing remain open for two weeks for members 
to submit questions, revise and extend their records, and 
submit additional information into the record. Without 
objection. So, ordered.
    [The information referred to follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    The Chair. And with that, the Committee on Small Business 
and Entrepreneurship stands adjourned. Thank you all very much.
    [Whereupon, at 3:51 p.m., the hearing was adjourned.]

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