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<html>
<title> - THE NEXT STEPS FOR THE PAYCHECK PROTECTION PROGRAM</title>
<body><pre>
[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
THE NEXT STEPS FOR THE PAYCHECK
PROTECTION PROGRAM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 10, 2021
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-005
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
43-606 WASHINGTON : 2021
-----------------------------------------------------------------------------------
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Blaine Luetkemeyer.......................................... 3
WITNESSES
Ms. Hilda Kennedy, Founder and President, AmPac Tri-State CDC,
dba AmPac Business Capital, Ontario, CA, testifying on behalf
of the National Association of Development Companies (NADCO)... 5
Ms. Lisa Bombin, President and CEO, Unico Communications, Inc.,
San Antonio, TX................................................ 6
Ms. Lisa Simpson, CPA, CGMA, Vice President of Firm Services,
American Institute of CPAs, Durham, NC......................... 8
Ms. Alice Frazier, President and Chief Executive Officer, Bank of
Charles Town, Charles Town, WV, testifying on behalf of the
Independent Community Bankers of America....................... 10
APPENDIX
Prepared Statements:
Ms. Hilda Kennedy, Founder and President, AmPac Tri-State
CDC, dba AmPac Business Capital, Ontario, CA, testifying on
behalf of the National Association of Development Companies
(NADCO).................................................... 39
Ms. Lisa Bombin, President and CEO, Unico Communications,
Inc., San Antonio, TX...................................... 51
Ms. Lisa Simpson, CPA, CGMA, Vice President of Firm Services,
American Institute of CPAs, Durham, NC..................... 54
Ms. Alice Frazier, President and Chief Executive Officer,
Bank of Charles Town, Charles Town, WV, testifying on
behalf of the Independent Community Bankers of America..... 64
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
AICPA - The American Institute of CPAs....................... 69
CUNA - Credit Union National Association..................... 72
Inclusiv..................................................... 74
Joint Trades Letter.......................................... 77
NADCO - National Association of Development Companies........ 79
NAFCU - National Association of Federally-Insured Credit
Unions..................................................... 80
National Association of Realtors............................. 83
NFIB......................................................... 85
THE NEXT STEPS FOR THE PAYCHECK PROTECTION PROGRAM
----------
WEDNESDAY, MARCH 10, 2021
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:07 a.m., in Room
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Golden, Davids, Mfume,
Phillips, Newman, Bourdeaux, Chu, Evans, Delgado, Houlahan, Kim
of New Jersey, Craig, Luetkemeyer, Williams, Hagedorn, Stauber,
Meuser, Tenney, Kim of California, Van Duyne, Donalds, Salazar,
and Fitzgerald.
Also Present: Representative Schneider.
Chairwoman VELAZQUEZ. Good morning. I call this hearing to
order.
I want to make sure to note some important requirements.
Let me begin by saying that standing House and Committee rules
and practice will continue to apply during hybrid proceedings.
All Members are reminded that they are expected to adhere to
the standing rules.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. Also, please remember to remain muted until you are
recognized, to minimize background noise. If you have to
participate in another proceeding, please exit this one and log
back in later.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party. I
will recognize that Member at the next appropriate time slot,
provided they have returned to the proceeding.
For those Members physically present in the committee room
today, we will also be following the health and safety guidance
issued by the attending physician. That includes social
distancing and especially the use of masks. Members and staff
are expected to wear masks at all times while in the hearing
room, and I thank you in advance for your commitment to a safe
environment for all here today.
One year ago today, during the early stages of the
pandemic, this committee held our first hearing on the impact
of COVID on small businesses. Since that hearing, our committee
has been working relentlessly to get them the aid they need to
make it through this crisis.
One of Congress' earliest and most effective means of
distributing relief to small businesses was through the
Paycheck Protection Program. Congress created PPP through the
CARES Act to provide fully guaranteed, forgivable loans to meet
payroll costs and other business expenses.
Today, PPP is still providing urgently needed funding. The
program accepts applications for first- and second-draw loans,
and has approved 2.1 million loans, totaling $156.2 billion
during 2021.
The high level of demand for PPP loans is a testament to
the program's effectiveness and the lingering impact of the
pandemic. It is clear that small businesses still need help,
but lingering issues in the program have led to the need for
Congress to consider a short-term extension beyond March 31.
Across the country, case counts, hospitalizations, and
deaths are trending in the right direction. At the same time,
we are vaccinating millions of Americans daily. This is cause
for optimism, but it does not mean this crisis is over.
The pandemic has caused unprecedented harm for small
businesses, and it would be a mistake to withdraw support
abruptly. Congress must work to understand the current
realities facing small business owners and extend PPP to meet
their needs.
We also continue to address the persistent issue of
inequity within the program. In the beginning, larger
businesses with ties to big banks received loans at the expense
of the smaller businesses. We have instituted numerous reforms
to empower community lenders to spread relief to underserved
businesses.
The Biden administration also took decisive action to get
funding to small businesses that had previously been neglected.
On February 22, President Biden announced the implementation of
a 14-day exclusivity window for small businesses with fewer
than 20 employees. The President also acted to get more money
to sole proprietors, make formerly incarcerated individuals and
those with federal student loan delinquencies eligible for PPP,
and clarified the use of ITINs.
I am pleased to report that these changes have been
effective in getting money to smaller businesses. According to
the Biden administration, there has been a 20 percent increase
in loans approved to minority-owned businesses, a 14 percent
increase in loans approved to women-owned businesses, and a 12
percent increase in loans approved to businesses in rural
areas.
During the exclusivity period, the SBA has served more than
400,000 small businesses with fewer than 20 employees, nearly
200,000 of which are first-time PPP borrowers. This is
meaningful progress and a sign of the impact that delivered
reforms can have on businesses that are often neglected.
Today's hearing is timely. I hope that it will give us the
opportunity to examine the impact the Biden administration
reforms have made on small business owners and lenders and help
us identify ongoing challenges we continue to hear about from
borrowers and lenders alike. I look forward to hearing from our
panelists about the current state of PPP and their
recommendations on the program's future.
And now I would like to yield to the Ranking Member, Mr.
Luetkemeyer, for his opening statement.
Mr. LUETKEMEYER. Thank you, Madam Chair, and thank you for
calling this hearing on this very important topic.
The title of this hearing is ``The Next Steps for the
Paycheck Protection Program.'' This is a particularly important
topic, given the fact that the PPP is set to expire on March
31, just 3 weeks from today.
I am interested to hear from the panel before us on how
lenders and businesses view the program, areas that should be
improved, and how to adjust the program moving forward. While
discussion on the next steps is critical, I want to reiterate
how successful this program has been to date.
With the State and local shutdowns sweeping the Nation to
protect against the COVID-19--the spread of COVID-19, the Small
Business Administration and the Department of the Treasury
implemented the PPP in a matter of days.
From the day it opened in early April to the day it
concluded on August 8, 2020, the first round of PPP provided
just over 5.2 million loans, totaling $525 billion, with loans
averaging approximately $100,000. According to the SBA, more
than 50 million small business jobs were either saved or
assisted by the PPP through the program's first round in 2020.
The latest round of PPP includes a second-draw loan for
businesses still struggling with the pandemic and has provided
approximately 2.4 million new loans for $164 billion. The
average loan for the second round is just under $70,000.
Despite the success of the PPP, this program was always
meant to be temporary. As a reminder, the PPP was created under
the CARES Act, which was signed into law by former President
Trump on March 27, 2020. The program's current end date on
March 31, 2021, marks almost exactly one year to the day from
when it opened.
Across America, we are seeing vaccines in arms and
lockdowns being lifted. These actions are allowing businesses
the ability to start turning the corner and recover. The latest
statistics from the SBA on the PPP reiterate these facts, as
the demand for PPP loans has slowed.
Additionally, the SBA has informed lenders that on the
March 31 deadline, the SBA will stop processing loans, which is
very concerning. This means that even if a small business files
the application and a lender submits it to the SBA before the
deadline, the SBA will stop any and all processing of the loan
on March 31
I have spoken to many lenders on this issue, and instead of
taking applications that will never be processed by the SBA,
they are planning to shut down the PPP lending until--entirely
before the March 31 deadline.
While the PPP has been a bipartisan product throughout its
tenure from the CARES Act, PPP Flexibility Act, and the
December COVID package, my colleagues on the other side of the
aisle decided to make the latest COVID relief package a
strictly partisan process. In their partisanship, they passed
legislation that did not extend the PPP deadline, despite
adding over $7 billion in funding to the PPP and increasing the
applicant pool of the program. The end result of this is the
passage of a bill seeking to beef up a program that is already
winding down and will end shortly.
Given these realities, I look forward to the hearing from
the panel--to hearing from the panel today regarding what
changes we need to make within the program and what steps
Congress needs to take.
Congress has important decisions to make, and it is my hope
that this hearing will assist us as we tackle the topics of
small business relief and small business recovery.
With that, Madam Chair, I yield back the time. And I also
thank the witnesses for being with us this morning.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer.
I would like to take a moment to explain how this hearing
will proceed.
Each witness will have 5 minutes to provide a statement,
and each Committee Member will have 5 minutes for questions.
Please ensure that your microphone is on when you begin
speaking and that you return to mute when finished.
With that, I would like to introduce our witnesses.
Our first witness today is Ms. Hilda Kennedy, Founder and
President of AmPac Tri-State CDC in Ontario, California. AmPac
CDC is a nonprofit certified lender of the U.S. Small Business
Administration working to finance the growth of small
businesses. AmPac has provided funding to over 135 with greater
than $200 million in loans under Ms. Kennedy's direction.
Our second witness is Ms. Lisa Bombin. Ms. Bombin is the
President and CEO of Unico Communications, Inc., in San
Antonio, Texas. Unico Communications is a Latino-owned micro
business operating in the events space. With assistance from
the PPP and EIDL programs, she has been able to adapt her
business to the changing reality of her industry and avoid
layoffs.
Our third witness is Ms. Lisa Simpson, Vice President of
Firm Services at the American Institute of CPAs. Ms. Simpson
leads the Private Companies Practice Section team at AICPA and
works on the development of practice management tools that
address topics most important for accounting firm owners.
I would now like to yield to Ranking Member Mr. Luetkemeyer
to introduce our final witness.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Next witness is Ms. Alice Frazier. Ms. Frazier is the
president and chief executive officer of the Bank of Charles
Town in Charles Town, West Virginia. She also holds several
positions at the Independent Community Bankers of America,
which is also known as ICBA, and, today, she is testifying on
its behalf.
At ICBA, she is currently the organization's secretary on
the board of directors and Chair of the Policy Development
Committee. With the Bank of Charles Town participating in both
the first and second rounds of PPP, along with her numerous
roles of ICBA, I look forward to hearing Ms. Frazier's
perspective on the program as well as what Congress should be
concentrating on over the next few weeks.
Ms. Frazier, I would like to thank you and the other
witnesses for joining us today, and I anticipate a thoughtful,
informative discussion.
Thank you very much.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer.
I welcome all the witnesses, and thank you for taking time
to be with us today.
Ms. Kennedy, you are now recognized for 5 minutes.
STATEMENTS OF MS. HILDA KENNEDY, FOUNDER AND PRESIDENT, AMPAC
TRI-STATE CDC, DBA AMPAC BUSINESS CAPITAL, ONTARIO, CA; MS.
LISA BOMBIN, PRESIDENT AND CEO, UNICO COMMUNICATIONS, INC., SAN
ANTONIO, TX; MS. LISA SIMPSON, CPA, CGMA, VICE PRESIDENT OF
FIRM SERVICES, AMERICAN INSTITUTE OF CPAS, DURHAM, NC; MS.
ALICE FRAZIER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BANK OF
CHARLES TOWN, CHARLES TOWN, WV
STATEMENT OF HILDA KENNEDY
Ms. KENNEDY. Thank you, Chairwoman Velazquez, Ranking
Member Luetkemeyer, my Congresswoman, Judy Chu, and
distinguished members of the Committee. Good morning, and thank
you for having me today.
My name is Hilda Kennedy, and I am the founder and
president of AmPac Tri-State CDC. We are based in Ontario,
California. I am thrilled to have the opportunity to tell you
about AmPac and our participation in the Paycheck Protection
Program, our commitment to providing access to capital to
underserved borrowers, and policies that could help the
Committee in determining next steps.
AmPac was established and approved as the first faith-based
CDC committed to helping businesses in economically
disadvantaged communities and committed to walking hand-in-hand
with businesses throughout the lending process. I founded AmPac
in 2005, became a CDC in 2007, and a micro lender and CDFI just
4 years ago.
Today, we have helped small businesses obtain more than
half a billion dollars in SBA 504 loans and served start-up,
emerging, and scaling small businesses with SBA microloans and
CDFI loans, and partnered with several local governments to
help small businesses.
In the last year, we also served the Paycheck Protection
Program, but getting started was not without its challenges. At
first, we had to be approved as SBA lenders for PPP. Then when
Congress identified community financial institutions, or CFIs,
to provide needed PPP funding--lending, CDCs, CDFIs, and
microloans, AmPac stepped in with a firm commitment to help the
smallest of businesses with loans under $50,000.
I want to publicly thank my Congresswoman, Judy Chu, for
helping us to get attention on the issue of establishing
guidelines for CFIs to start lending. As nonprofit lenders,
CDCs also face liquidity issues. The availability for CFIs to
lend through the Federal Reserve liquidity facility, which the
Fed just extended--thank you--has been a lifeline for
participating CDCs to continue to deliver PPP loans.
Being designated as lenders for PPP and addressing the
liquidity issues were two of the major barriers to nonbank
lenders participating in PPP. Once we got underway, AmPac
funded 171 loans, totaling over $3 million, with an average
loan size of $17,000.
And to put a face on these numbers, I am reminded of
Leticia. She got a loan for a party planning business for
$2,875, and you would have guessed she got a million dollar PPP
loan. She came to us saying, You have no idea what this means
to my family.
When we reached out to Leticia regarding the Schedule C
changes for a second draw, Leticia qualified for a $20,000 PPP
loan.
In my written testimony, I shared a story about Calvin, a
custodial maintenance company, who had been rejected and
waitlisted by every emergency relief program. But when the
Schedule C qualifying calculation changed, Calvin qualified for
a $13,000 loan. He said, Hilda, I can't believe somebody
finally said yes. He is now able to pay his employees and keep
his business afloat.
We have many Calvins and Leticias in our community, and I
know several of my colleagues do as well. So many of the
Schedule C filers missed the opportunity for a higher PPP loan
in the first round and are in danger of missing out on this
round of funding. Since it took until March 3 to get the new
forms, time is not on our side. These businesses need a little
more help, and they are willing to do the work. Calvin and
Leticia are among the 95 percent Black and 91 percent Latino
Schedule C filers who need this relief, and we need time to
serve them.
As PPP comes to a conclusion, long-term recovery is top of
mind, and we believe community advantage is a critical tool,
especially for targeting businesses in underserved communities,
and to help PPP stabilize businesses' growth. SBA needs to move
forward to approve qualified lenders ready to serve.
As I conclude my comments, I want to thank the Committee
for the impactful aid to SBA's small business borrowers via
debt relief payments. Unfortunately, as you know, there is a
shortfall in this aid. I cannot overstate the fact that these
payments are critical for these small business borrowers. AmPac
and my CDC colleagues across the country and in your
communities are here and available to serve small businesses,
to help them recover, and to support their growth.
I sincerely appreciate the opportunity to testify this
morning and share AmPac's experience with the PPP program and
our mission to serve underserved borrowers. I look forward to
answering any questions you have.
Thank you.
Chairwoman VELAZQUEZ. Thank you, Ms. Kennedy.
Ms. Bombin, you are now recognized for 5 minutes.
STATEMENT OF LISA BOMBIN
Ms. BOMBIN. Thank you, Chairwoman Velazquez and members of
the Committee, for affording me a moment of your time to share
my story as a Latina small business owner.
As the founder and owner of Unico Communications, a 16-year
event production company and a Latina-owned business
headquartered in San Antonio, Texas, I am proud to say the
company has a solid reputation of producing large-scale events
for the Nation's most reputable nonprofit organizations. And I
am honored to represent a larger event industry that includes
master storytellers, writers, planners, producers, audio and
video engineers, caterers, and so many more magicians that
worked tirelessly behind the scenes of our most memorable
celebrations, concerts, conferences, and events.
The pandemic left my business, along with thousands of
other event companies across the country, scrambling to develop
a method to sustain my staff and execute payroll in the midst
of so much uncertainty. The merciless effects of the resulting
shutdown were evident in the swift volume of event
cancellations that followed. Our business came to an abrupt
halt. The only alternative was to suspend my own salary to
retain as much cash flow, enabling us to keep our staff secure
and fully employed for the immediate future.
After several emotional, exhaustive days of seeking a new
business strategy and plan, we had a glimmer of hope when
Congress established the Paycheck Protection Program in the
CARES Act.
To say the initial rollout was problematic may be an
understatement. When the application window opened, I, like so
many other businesses, had been banking with a well-known
national bank. And along with many small minority-owned
businesses, we were left in the dark.
Our financial institution provided no method of submitting
an application, instead offering only a landing page to stay
tuned for more details. And I found myself seeing the hours
slip away and feeling the anxiety rise in what folks like a
random selection of some of my peers and fellow business owners
who had confirmed their applications had been successfully
processed at other banks. All the while, payroll deadlines
loomed for my team.
After multiple attempts to submit our application, I
contacted the U.S. Hispanic Chamber of Commerce to seek advice
and technical assistance, and they recommended that I submit a
PPP application through a small community bank, as they had
been seeing an increased track record of successful submissions
from other members across the country.
Furthermore, the USHBC was one of the few national
organizations providing technical assistance in both English
and Spanish to minority-owned businesses and worked with the
SBA to have them translate their resources into multiple
languages.
There wasn't a list of lenders from which to start. I
brought in my husband to help research, and we began making
calls and scouring the internet through the night to research
local banks across our State to see if they would accept
applications from new customers.
We were incredibly fortunate to have had success in
submitting and securing a PPP loan in the amount of $26,900
through Pioneer Bank, a small Texas regional institution.
Sadly, not all businesses like mine were able to secure a
PPP loan. There were more than 150,000 Latino small business
owners that lacked the access to technology and guidance to
resources in Spanish and, as a result, have succumbed to
closure.
According to a study published by Small Business Majority,
which service small and minority-owned business owners, one in
three say the process of applying for the PPP was challenging
due to the calculations and paperwork involved, and nearly one
in four said that finding a lender willing to accept their
application was challenging.
Now more than ever, small minority-owned businesses need
the U.S. Small Business Administration and its portfolio of
loans and technical assistance programs. Our business
membership with the U.S. Hispanic Chamber of Commerce helped me
navigate this convoluted process through the communications.
Furthermore, I received technical guidance from the
University of Texas at San Antonio's Small Business Development
Center and additional funding through the city of San Antonio's
Recovery Grant Program facilitated by LiftFund, a community
development financial institution.
These three entities were critical in my business success
during one of the most unprecedented economic times in American
history. If it had not been for the forgivable loans built into
the CARES Act, our business would not have been able to
survive, because we could not sustain more debt.
As a small business owner, I call upon our Members of
Congress to expand PPP loans for our Nation's small and
minority-owned businesses and to provide more support and
financial resources to the SBA and the Minority Business
Development Agency to fund critical, technical assistance in
multiple languages through public-private partnerships with
chambers of commerce and other business associations across the
country.
Our road to recovery is still vast, and organizations like
these need to be funded and sustained to continue helping
businesses like mine navigate the ongoing economic crisis.
Thank you again, Chairwoman Velazquez and members of this
Committee, for your leadership and continued legislative
collaboration to ensure the economic survival of America's more
than 30 million small businesses, of which 4.7 million are
Hispanic-owned.
Chairwoman VELAZQUEZ. Thank you, Ms. Bombin.
Now we recognize Ms. Simpson for 5 minutes.
Ms. Simpson, you are muted. You need to unmute yourself.
Ms. SIMPSON. Common for me. I apologize.
Chairwoman VELAZQUEZ. Okay.
STATEMENT OF LISA SIMPSON
Ms. SIMPSON. Thank you again for the opportunity to talk
about the Paycheck Protection Program on behalf of the American
Institute for CPAs.
I am Lisa Simpson. I am the vice president of Firm
Services. And in my role, I have been helping support thousands
of small CPA firms and their business clients navigate PPP
since the program launched last April.
I want to thank Congress, the SBA, and Treasury for the
program and the lifeline that it has provided at a critical
time. It helped so many businesses and nonprofits keep their
employees on the payroll, keep the lights on, pay the rent, and
position their businesses to succeed when the economy is ready
to reopen.
In my testimony, I want to talk about how the accounting
profession is helping PPP borrowers, review some of the major
challenges within the system currently, and ask Congress to
extend the PPP application period for at least an additional 60
days.
Many small business owners do not have accounting
professionals in-house, so when PPP opened, they immediately
turned to their CPAs or their trusted business adviser to help
with the program. So to help the CPAs and their small business
clients, we developed free resources, including loan amount
calculators, loan forgiveness calculators, and we provided
townhalls to allow for questions and answers to be submitted,
to provide the latest breaking news on guidance and changes so
that we could make these free resources available to the small
business owner who maybe doesn't love accounting as much as I
do. So we try to approach it from their perspective.
We also asked to engage with the SBA, Treasury, payroll
providers, and lenders to create a holistic environment where
we can talk about the challenges and areas where additional
guidance might be needed.
There are current operational challenges, as you have heard
about. When PPP reopened in 2021, the SBA implemented front-end
compliance checks designed to limit and reduce the amount of
fraud in the program. We support those reasons established to
limit fraud and to protect taxpayer money. However, these
challenges--these front-end compliance checks have created
significant challenges for small business borrowers to be able
to access the SBA system and to get their loans through the
system and then to the approval process.
As we discussed, in written testimony, there are over 50
error codes and flags that can be difficult to decipher and
resolve by both the lender and the borrower. Borrowers can end
up being caught in limbo for weeks. We have heard of situations
where borrowers have suffered as long as 6 weeks waiting for
their application to either get into the system or make it
through to the approval process.
One of those borrowers is Shawnetta (ph), who I spoke with
several times. Her application was flagged. 2020 was a very
difficult year for her. She survived COVID and cancer, but her
loan application in 2021 was stopped. She ended up having to
give up her warehouse space before her loan ultimately came
through.
These flags and the error codes impact the smallest
businesses and can trigger a loop where there is no way to get
out. So we are asking for transparency and additional resources
to resolve these error codes.
Recent changes to the program for self-employed borrowers
are well intended to provide additional relief to the smallest
of self-employed borrowers. However, changing a program
midstream has caused anxiety, confusion, and delays in the
process. The guidance was released in--March 3. Lenders are
still working to update their system to enhance--to accept
these changes, and now we are hearing that many borrowers--many
lenders are simply closing their application windows because
they need time to clear out the applications that are in
process.
For these reasons, we are asking for that 60--at least a
60-day extension on the application window.
The changes for self-employed borrowers are not
retroactive, and this is resulting in a situation where
hundreds of thousands, perhaps as many as 2 million self-
employed borrowers are not able to take advantage of this
enhanced loan amount. So they are feeling like they have been
left behind, and they are not able to get loans that our CPAs
who support small and minority-owned businesses are saying $7-
to $10,000 in additional loan amounts could make the difference
in the survival of these small businesses and return the
corner.
In addition to the complexities within the system, CPAs who
are instrumental in helping their small business clients and
not-for-profits navigate PPP are also dealing with counting
around issues like the Employee Retention Credit, EIDL, the
shuttered venue operator agreement, which we are still looking
for guidance on.
So providing additional time will allow the CPA to work
with small business borrowers to find the program that best
suits their needs.
In conclusion, I would like to thank Congress and the SBA
and Treasury for engaging in a conversation on how to improve
this program, how to keep it going, and I urgently urge you to
extend the deadline for at least another 60 days.
Thank you.
Chairwoman VELAZQUEZ. Thank you, Ms. Simpson.
Now we recognize Ms. Frazier for 5 minutes.
STATEMENT OF ALICE FRAZIER
Ms. FRAZIER. Thank you, Chairwoman Velazquez, Ranking
Member Luetkemeyer, and members of this Committee.
I am Alice Frazier, president and CEO of Bank of Charles
Town, a $620 million asset community bank in the eastern
panhandle of West Virginia, and we serve Hagerstown, Maryland,
and Loudoun County, Virginia as well. Today, I am testifying on
behalf of the Independent Community Bankers of America, where I
serve as Chair of the Policy Development Committee and a member
of the board of directors. Thank you for this opportunity to
testify at today's hearing.
The PPP has been a lifeline for small businesses, churches,
and other nonprofits in the communities we serve. My comments
reflect conversations with hundreds of community bankers across
the country.
Our firm was a natural fit in the business model of a
community bank, as we are a small business lending specialist
with deep roots in the communities we serve. My bank's PPP
lending is typical of any community bank across this Nation.
In the first round, we made 557 loans. In the second round,
we have seen approximately half the demand and have made 272
loans to date. In each round, about 85 percent of the loans
were under $150,000, and more than half were microloans of less
than $50,000. Our PPP lending has saved nearly 7,000 jobs so
far and is really making a difference in the communities we
serve.
Other community banks have had similar results. In fact,
community banks made 60 percent of the first-round PPP loans,
which supported over 33.7 million jobs. What is more, community
banks made over 70 percent of the PPP loans to minority-owned
and women-owned businesses, and over 60 percent of the PPP
loans to veteran-owned businesses.
To obtain most of the value of this program for the
communities we serve, BCT, Bank of Charles Town, like all
community banks, is committed to conducting outreach to
potential applicants. During the first round, we recorded
podcasts and participated in local radio shows. In the second
round, after learning that some minority communities lacked
access to the program, we initiated targeted outreach to reach
these communities.
In recent webinars, we sponsored with the local chapters of
the NAACP. We encountered numerous businesses, churches, and
other loan candidates that had not previously applied for a PPP
loan because they thought--they couldn't find help with the
paperwork or because they were turned away by a larger bank as
too small.
To date, we have helped 38 businesses obtain first-draw
loans during the second round. Just last week, we had an
African American church applicant for a first-draw loan. Though
they qualified for a $4,000 loan, they only requested $2,000
because they were concerned that if it were not fully forgiven,
they did not want to be left with an outstanding loan. After
additional education and coaching, they decided to take the
full loan.
This program cannot fulfill its potential without a one-on-
one advice from a lender who is committed to making it work.
And, as you know, the PPP closes 3 weeks from today, on March
31, and while demand for the program has slowed significantly,
there are still businesses and nonprofits that desperately need
these funds.
At this moment, thousands of applications are in limbo
because they were put on hold by an automated screening
program. With the deadline approaching, we ask this Committee's
help in urging the SBA to expedite the review of these holds.
Also, under current law, any application not approved by
March 31, even if it was submitted prior to that date, cannot
receive PPP funds. No applicant should be left stranded because
of bureaucratic red tape. We believe an application submitted
by March 31 should be eligible for approval and funding.
Lastly, if the Congress extends the deadline beyond March
31 or creates another round of PPP, the program should be
targeted at those industries that have suffered the most in the
pandemic: hospitality, travel, conventions, and others. These
industries are major employers in many of the regions of the
country and will continue to need assistance until the economy
has fully reopened.
We have a set of recommendations for ensuring the funds are
equitably distributed and retain the most value for job
preservation, and I refer you to my written testimony for more
detail.
Thank you again for convening today's meeting, your
leadership, and the opportunity to offer my perspective. I am
happy to answer any questions you may have.
Chairwoman VELAZQUEZ. Thank you, Ms. Frazier.
Thank you to all the witnesses for the incredible,
important information that you have shared with us.
I would like to address my first question to Ms. Kennedy. I
was pleased to see the Biden administration announce policy
changes allowing sole proprietors to secure considerably larger
PPP loans. Given that 70 percent of businesses without
employees are owned by women and people of color, can you
discuss the impact the rule will have on them and their ability
to recover from the pandemic?
Ms. KENNEDY. Thank you, Chairwoman Velazquez. And I can't
overstate the significant impact to women and minorities for
this program. The examples that I gave to you--an African-
American-owned custodial maintenance company, and Leticia, a
Latina-owned, women-owned business in the party planning space,
they absolutely need those resources, and that Schedule C
change was absolutely critical.
Our involvement with the Women Business Owners Association
in our local area and statewide, our involvement with local
Black and Latino chambers of commerce, they need and want this
program for Schedule C borrowers, and that change will be the
difference between them keeping their doors open or closing.
Chairwoman VELAZQUEZ. Thank you.
Ms. KENNEDY. Thank you.
Chairwoman VELAZQUEZ. Ms. Simpson, as a representative of
the CPA community, you deal with your small business clients
regularly, and I am sure they bank at different places. We have
heard feedback that some larger lenders are not currently
processing PPP loan forgiveness applications for loans made in
2020.
What consequences could a serious delay in PPP loan
forgiveness have on small business?
Ms. SIMPSON. Thank you, Chairwoman Velazquez. PPP
forgiveness is computated depending on the amount of the loan,
and there has been conversations leading up to the legislation
that was passed December 27 around whether or not the
forgiveness process can be simplified for loans of $150,000 and
less, which was approved.
We do expect that there will be an increase in the capacity
of lenders to begin expecting the forgiveness applications
again. They have put all their efforts recently into launching
these--this new round of PPP, but we know that they are
certainly--from the conversations we have had, they seem
willing and anxious to turn to for their next processing.
We believe that this gives borrowers ample time to navigate
other release options, such as the Employee Retention Credit,
which can be an amazing source of much-needed funds, but there
are complicated interplays between Employee Retention Credit
and PPP, so taking the time to navigate that is vital.
Chairwoman VELAZQUEZ. Thank you.
Ms. Bombin, I understand your initial PPP loan application
was denied, and you had to find a lender who was willing to
make a PPP loan to a four-employee micro business such as
yours. Can you elaborate on that process now that you have
received your PPP loan? How did your PPP experience change your
views on banking big versus banking small?
Ms. BOMBIN. Thank you so much for this time, Chairwoman. I
want to elaborate that it wasn't that it was denied; it was not
available. We received notice from this national bank, and on
their landing page, they simply redirected, as all of the--as
the grand opening of the PPP had been--window had been opened
on April 3, they had a statement on the website basically
letting folks know that because there was significant interest,
they were not able yet to process, and there has been a high
volume of interest received, but they were not yet accepting.
So within that period of time, we--as we scoured and found
Pioneer Bank, it became our lifeline for our business. We see
this experience now as eye opening. I feel the value of
ensuring that we put our business--small business' dollars and
our worth to financial institutions that respect our
investment, our time. And the power that we bring as one body
is critical.
So after applying through this smaller bank, it became
clear that the only way we could see change happen is by moving
your funds and your worth and your revenue to facilities and
banks that do value you.
As of this time, we have received funding. We have now
moved our business accounts over to a smaller local bank. It is
a very different experience, but every time I call, they know
my name. It is refreshing.
Chairwoman VELAZQUEZ. Thank you.
My time has expired, and now I recognize the Ranking
Member, Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Ms. Frazier, as we all know, the March 31 deadline is
quickly approaching. In your testimony, you state that
community banks have seen a demand, or at least your bank has
seen demand cut in half for the second round of PPP here
compared to the first round.
Can you provide a little more detail on what you think is
the reason for that? Is it just not enough banks--or people
qualifying, or do you think there is no demand for it, or in
your particular area, your economy is coming back, or what
would--can you elaborate on it just a little bit further?
Ms. Frazier? Unmute, please.
Ms. FRAZIER. Thank you very much.
I would say necessarily there would be less folks applying
for the loans just within with the new rules of having to
demonstrate 25 percent impact gross revenues over a quarter.
And there are businesses that have recovered, but there are
many small businesses that still desperately need this program.
And as I mentioned in my testimony, there are still small
businesses that didn't apply the first time that are getting
their first draw this time. So I would liken it that the
program with 500 and less employees has diminished the numbers
that qualify and that the program is far more targeted and
focused on those that need it the most.
Mr. LUETKEMEYER. Well, in your testimony, you suggest that
if we do another round, that it be more targeted. And I am kind
of curious. What is the reason that the--that the applicants in
your business did not apply for the first round? Were they not
in business? They were, you know, struggling to do that, or
they thought they could do without it and just didn't want to
go through the hassle, or the bank didn't contact them, or what
was the reason for, you know, not even being--not wanting to
participate the first time?
Ms. FRAZIER. I will give you, if I may, a few examples to
that.
First of all, just a week ago, I was speaking with a
restaurant owner who had tried to apply in the first round with
their bank, similar to Ms. Bombin. The bank itself was not
helpful in getting that to her, and she was busy working in the
business rather than having time to work on the business and
make these applications. So she now has applied with us for a
first-round draw. Given the timeframe of March 31 deadline, she
will not be able to access the second draw, which her
restaurant will clearly need to continue to survive.
But I also would state that I don't know that it--it is
about not having access. I think it is about having
information, and outreach is critically important, as I cited
in the testimony, and as--like all banks--community banks have
done, have really reached into the community to----
Mr. LUETKEMEYER. Thank you. Well, it is disappointing to
hear that the banks are not doing their job, which is to try
and help their customers access the program, because I think
that is part of their job, is to be able to help their customer
access this program, be able to help them through the problem
and help their community. It is disappointing to hear that they
are not doing it.
One more question for you before I move on to another
witness here. With regards to the code problem, there is about
50,000 loans right now sitting in--at SBA that are--they are
working through manually trying to get these things done, and
by end of the month, anticipate somewhere around 10,000 are
still not being able to be processed because of that code
problem.
What is your solution to that? Or have you been talking to
the SBA? What do they say? Where do you think we stand on that?
Ms. FRAZIER. That is definitely a difficult issue. We have,
for example, one borrower that has been in the code issue since
January 29 that we have been trying to resolve, and we--you are
forced to use the systems to do that. However, not always can
you resolve an issue through a system, and you need to speak
with somebody that is--has expertise and ability to point you
in the right direction so that the borrower can benefit from
this program.
And so if we can have an experienced help desk with a live
person that can answer the phone and be able to support us, I
think we would be able to find error resolutions moving along
much faster.
Thank you.
Mr. LUETKEMEYER. I appreciate that.
Ms. Simpson, you mentioned in your testimony that you think
there is as many as 2,000--or, excuse me--2 million loans that
are sitting out there waiting to get money that probably will
not apply. Where do you get that figure from, and what do you
think is the holdup on that?
Ms. SIMPSON. Let me clarify that comment. The 2 million
represents the number of self-employed business owners who,
based on the data that we have available, may have already
applied for either--for a first-draw loan at the reduced loan
amount. So they can't take advantage of the increase based on
the new guidance.
Mr. LUETKEMEYER. Okay. All right. Thank you very much.
My time has expired. Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
Now we recognize the Chairman oF the Subcommittee on
Underserved, Agricultural, and Rural Business, Mr. Golden from
Maine.
Mr. GOLDEN. Thank you, Madam Chair.
I think I am going to try and follow up a little bit
further with that final question from the Ranking Member, and I
will direct it at Ms. Simpson.
So we already know that you mentioned this issue in your
testimony, where you found that a lot of your members probably
could have gotten a much higher PPP maximum, maybe around 50
percent higher, if they are able to retroactively adjust the
max amount to account for SBA's recent guidance for 1040
Schedule C filers.
Do you or your association have any kind of estimates about
what share of Schedule C filers could benefit from a
retroactive application?
Ms. SIMPSON. I don't. I am sorry. We can certainly take
that back to the team and try to find that information.
There is a cap on the loan amounts for Schedule C borrowers
just like all owners of 20,833, so that does limit the cap of
the loan, but we can certainly take that back and look into it.
Mr. GOLDEN. Yeah. That would be very helpful. You know, and
if anyone else on the panel has--thinks they have any idea of
what the scale is like out there, that could obviously have an
impact on future discussions about additional appropriations
for the program if people were allowed to apply retroactively
for a higher loan amount. So I think that would be very helpful
information for this Committee and for Congress.
I guess I would also ask, Ms. Simpson, have you heard any
examples from clients that your association represents who are
in the situation with the Shuttered Venue Operators Grant
program where we have a venue that is publicly owned but
privately operated who are questioning whether or not they are
going to be eligible for that program?
Ms. SIMPSON. There is certainly certain uncertainty around
the requirements for the--what we essentially call the SVOG,
and so they are anxiously waiting for that program to open up
before the process to begin to apply.
Mr. GOLDEN. So you don't have any early information about
what eligibility is going to look like for those types of
entities then?
Ms. SIMPSON. That is correct. I do not.
Mr. GOLDEN. All right. That is helpful.
I think basically everyone on the panel, or at least pretty
close to, has talked about some of the issues with 2021
applicants facing delays related to error flags in the SBA
system. And some of you have suggested that perhaps we should
ensure that people are eligible beyond March 31 if they, you
know, miss that deadline through no fault of their own,
essentially if the flag is dropped and is resolved in their
favor, but then they find that they are not eligible. So I
think everyone is in agreement about that.
But I am also hearing from a lot of constituents who are
looking at the Shuttered Venue Operators Grant, but they are
worried that they are going to find out late in the game that
they are not eligible, and then it will be too late to apply
for a second-draw PPP or even a first-draw PPP.
So would you--any of you recommend maybe some kind of like
safe harbor to address a situation like that where people are
waiting for the shuttered venue program but could be excluded,
you know, late in the game, and then miss the ability to apply
for the PPP?
Ms. SIMPSON. I believe that there is a current proposal to
allow PPP almost as a bridge while waiting for the requirements
around the SVOG to be fully fleshed out, and then that PPP loan
could be reduced from the amount of any SVOG grant.
Mr. GOLDEN. And you are aware that that is----
Ms. SIMPSON. The challenge there----
Mr. GOLDEN. That is just a proposal, correct?
Ms. SIMPSON. That is correct. It is just a proposal, as far
as I understand. But the challenge there is the impending March
31 deadline on loan application. And I think SVOG-eligible
entities are just nervous about which way to go.
Mr. GOLDEN. Thank you.
If anyone else wants any other feedback, you have got about
30 seconds left of my time, and I would be happy to let you
have it.
Ms. FRAZIER. I would just like to add that I would consider
that also in the targeted industries, that if you were to
extend the deadline, that this too would be one of those
industries that should be eligible for that.
Mr. GOLDEN. Very good.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Texas, Mr. Williams,
Vice Ranking Member of the Committee, for 5 minutes.
Mr. WILLIAMS. Thank you, Madam Chairwoman.
PPP was designed to help small businesses during COVID-19
and keep employees on payroll. The program was only designed to
be 8 weeks long to sustain businesses during short-term
lockdowns.
My colleagues on the other side are focused on expanding
the program for political gains with union members and Planned
Parenthood overprioritizing hard-working businesses that use
this program as a lifeline. It is irresponsible for Congress to
continue expanding PPP unless it targets specific industries
that have been hit hardest by the COVID restrictions. We don't
want PPP to become part of an economy. At the end of the day,
we need to cut taxes.
So my question to you, Ms. Frazier: What metrics should we
be looking at as we disperse what is left in PPP, and how do we
determine what industries should be targeted?
Ms. FRAZIER. Thank you. I believe the metrics that you
began with in this what is called second round, where you
looked at the number of employees and an actual impact to
revenues to the businesses, actually targeted--began to target,
as you noticed in the number of applications this time, so I
would continue along that path.
As you decide how much more to support, maybe--I can tell
you from looking at the restaurants, what we have seen is
anywhere from 40 to 70 percent of revenues are reduced,
depending upon their business model as an example overall. But
I do believe the number of employees, the revenue impact of the
organizations, and the changes to the Schedule C, I believe,
that were late in the game are critically important, as well
allowing that route, folks that may have already applied, to
return and see an increase would be very helpful for them.
Mr. WILLIAMS. All right. Thank you.
Many banks have announced that they will no longer accept
applications, as we talked about this morning, 2 weeks prior to
the March 31 deadline, when Paycheck Protection Program is
expected to close. Many of these deadline concerns come from
the Small Business Administration delaying applications because
of automated holds due to fraud and abuse. A suggested solution
has been to put a time stamp on applications to ensure who
apply up until March 31 are guaranteed to be processed.
So also to you, Ms. Frazier: Can you elaborate on the PPP
information gap between the Small Business Administration and
lenders and how your community bank plans to handle the March
31 deadline?
Ms. FRAZIER. Certainly. Thank you. We are asked internally
what we said was a March 29 deadline, not--mainly because what
I would speak to is it takes time for any bank, and us
included, to process the application, ensure we have all the
documentations, ensure the calculation is correct before we can
submit to the SBA. And then once submitted to the SBA, it can
be 24 to 48 hours, assuming there are zero error messages.
And what we have said to our borrowers or potential
applicants is that get it in before that date because we can't
guarantee it will be completely approved by the March 31
timeframe.
Mr. WILLIAMS. Okay. Ms. Simpson, you mentioned complexity
and confusion of tax deadlines stemming from Paycheck
Protection Program and COVID-19. PPP was intended to be a
lifeline for small businesses, not an avenue to force
burdensome tax liabilities and operational challenges on Main
Street America.
So, Ms. Simpson, can you talk about some of the most widely
asked CPAs--questions CPAs have gotten related to PPP loans and
what guidance would be most helpful to get these issues
resolved before tax day?
Ms. SIMPSON. Well, it gets complex and gets into some of
the nuances of Tax Code. Before we get tax returns filed,
borrowers are looking for guidance as to how these are actually
going to show up on the tax returns.
So some IRS guidance is needed. And, additionally, some
guidance around, again, how to report ERC as an additional
credit opportunity that has been made available to PPP
borrowers who couldn't take it in 2020 but are now eligible.
There are some complex requirements around when that gets put
back on the tax return.
Mr. WILLIAMS. Okay. I thank all of you for participating
today, and I yield my time back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Kansas, Ms. Davids,
for 5 minutes, Chairwoman of the Subcommittee on Economic
Growth, Tax, and Capital Access.
Ms. DAVIDS. Thank you, Chairwoman Velazquez and Ranking
Member Luetkemeyer, for holding this important hearing today.
I am really glad that we are talking about the next steps
for the Paycheck Protection Program. It has obviously been a
very, very important program. And with the vaccine rollout
speeding up, there is real hope for economic recovery and into
the public health emergency that we are in the middle of.
And, you know, I think that it is clear we have heard today
and we have heard over the last couple of months that small
businesses are still struggling to keep their doors open and
trying to just figure out how to move forward. And I am really
glad that so many of us on this Committee are committed to
providing the support that our small businesses need. Clearly,
small businesses are the backbone of our economy.
And I know that the Paycheck Protection Program has, at
least from a number of people in the Kansas Third, has really
saved a lot of livelihoods and enterprises from some pretty
extreme economic difficulties. And I also know we heard about
the roadblocks, the hiccups, the difficulties that folks have
faced.
And I am kind of interested to start off with whether or
not, Ms. Kennedy and Ms. Simpson, if you could, kind of talk a
little bit about the second-draw restrictions, whether it is
too restrictive for the folks that you all are seeing, and then
also as a follow-up--and this can be for anybody--the major
challenges that we are seeing that are slowing down the loan
applications.
Maybe, Ms. Frazier, if you could answer that second
question after Ms. Kennedy and Ms. Simpson.
Ms. KENNEDY. Thank you so much. On the second-draw
restrictions, I think that the guidelines were very reasonable
and, certainly, this second rollout of PPP really made a
difference in helping the communities that needed the most
service.
The change with the Schedule C has been really significant,
and I can't emphasize enough time is not on our side. And so
the time to help these businesses that are Schedule C, to get
the funds to underserved communities, that, quite frankly, are
the greatest impacted in the pandemic if you look at the
numbers for economically disadvantaged communities and rural
communities, to be able to get access to these resources, and
the Schedule C change will make a significant difference.
And I will say to you in response to your last question,
the errors in the holds have been a real challenge. There was
kind of a magic wand after the February 24 changes were made
that helped to remove some of the errors. But the resources,
the competent staff to help people address those errors is
really what is slowing down the process. And with this looming
deadline, it could absolutely cripple the program and small
businesses from getting the help that they need if we don't get
that addressed.
Ms. SIMPSON. If I may, I will address the second question
and then go back to the third.
Regarding the conversations around providing an opportunity
for SBA to approve applications that are in the pipeline on
March 31, that is great, but there are still so many
applications that can't even get through the front door to get
into the SBA system.
In our written testimony, we provided some graphics because
it is really complicated, and so a visual aid has been included
in the materials to help explain that front door that is
entrapping so many applicants. So if that could be taken into
consideration when thinking about that March 31 deadline, that
would be very helpful.
As to the first question around the 25 percent revenue
decline for second-draw loans, we are working with CPAs. We are
trying to help their clients understand whether or not they
qualify at that 25 percent level. The SBA and Treasury have
been very open and flexible in how borrowers can calculate
that. However, we still need a key piece of guidance as to
whether some of the other business relief funds that came out
of the CARES Act, such as Provider Relief Funds and HHS funds,
are included in gross receipts.
Ms. DAVIDS. Thank you. And then I will have to follow up. I
would like to follow up, Ms. Frazier and Ms. Bombin, about a
couple of other things. So thank you all for your time.
I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
The gentleman from Minnesota, Mr. Hagedorn, is recognized
for 5 minutes.
Mr. HAGEDORN. Thank you, Madam Chair. I appreciate you and
the ranking Republican member for holding this hearing. It is
very beneficial.
As we know, the Paycheck Protection Program was designed to
help businesses and others get from one side of the coronavirus
to the other and keep people employed and paid. And it has been
very successful in many ways. Many members of this Committee
and my Agriculture Committee where I serve worked early on to
see that farmers and ranchers would also be included in the
Paycheck Protection Program.
Unfortunately, there has been a little bit of an oversight,
I believe, in the last legislation where farmers and ranchers
are only allowed to use net income instead of gross income for
calculations to apply for PPP loans. And I offered an amendment
in the reconciliation process with this Committee. It wasn't
accepted, but I know there was a lot of folks on the other side
of the aisle who felt like it was an amendment that we should
take another look at.
So I have introduced legislation, the PPP Flexibility for
Farmers and Ranchers Act. It is H.R. 1411. Has about 70
cosponsors already, and that would fix this loophole and allow
our farmers and ranchers to use gross income for their
calculations.
And, Ms. Frazier, I noticed in your testimony that you
discuss this concept. Can you explain to folks why this is so
important for our farmers and how it will help our communities?
Ms. FRAZIER. Thank you. Well, as we know, the farmers
really are the ones that feed us every day, provide the food
for our tables and for our lunches, et cetera. And they work
very hard on their businesses, and oftentimes their net bottom
line is very small in comparison to what they provide at the
gross revenue level.
So similar to the Schedule C, this change to the schedule
act was critically important and has actually given the farmers
quite a bit of hope. And we saw quite a number of farmers
coming back, looking for additional funds, and excited to see
that benefit. So I thank you for those changes and really
support your initiatives to continue that.
Mr. HAGEDORN. I appreciate it. Thank you.
And as somebody who represents southern Minnesota, a lot of
agricultural interest, I can tell you that, you know, when farm
families sell out, they usually sell out to bigger operators,
and bigger operators are not bad folks but it means that we are
going to have fewer people holding the land, working the land,
living in our rural communities, shopping on Main Street, going
to our schools. It puts enormous pressure on our rural
communities to be sustained. And, of course, it undermines what
we do in agriculture, which is incredible, providing food and
quality food at affordable prices for the American people and
many around the world.
So I am hopeful that we can gain support for this piece of
legislation, and if the program is extended in any way, make
sure that that is included because it would help over 100,000,
I believe, farmers and ranchers across the country. And so I
would ask for your support on that.
Lastly, I think, it seems to me, based on what I have seen
in the State of Minnesota, best thing we can do to help
everybody across the board is to get rid of these lockdowns.
Our State of Minnesota has been locked down as much as almost
any other State. It has really hurt businesses, farmers. It has
hurt people across the board, and we are seeing a real labor
shortage out there. And, unfortunately, with the schools closed
for the most part for a long, long period of time and not fully
reopened, you know, parents aren't able to get back into the
workforce full time. And we are seeing an enormous pressure put
on for childcare services.
So I would encourage, you know, if he is watching, our
governor, to open back up, get the kids back in schools,
because it is also having a bad impact, not just on businesses
and so forth, but addiction issues, suicide, people having
problems with depression, folks like me. I am a stage IV cancer
survivor. And, unfortunately, there are people that didn't go
to the doctor and get their screenings, who are probably going
to have worse problems than they otherwise would if they had
had that in time. And then you see students in record numbers
in Minnesota falling behind, dropping out.
These are the types of unintended consequences of lockdowns
that really should be examined. I think we need to make strong
changes in that area.
So if there is anyone that would like to comment on the--
well, I only have 35 seconds. I apologize.
But, with that, Madam Chair, I will yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Maryland, Mr. Mfume, Vice Chair of the
Committee and Chairman of the Subcommittee on Contracting and
Infrastructure, is recognized for 5 minutes.
Mr. MFUME. Madam Chair, thank you. My thanks to both you
and the Ranking Member for pulling us together for this hearing
and for the leadership that you have demonstrated on this issue
going back over and over again.
A couple of quick things. First of all, I appreciate the
previous gentleman's remarks, particularly about the human
aspect of what is going on, in addition to the very real needs
of businesses out here in the country.
For the record, Madam Chair, I was glad that you put in
your memorandum to us a reminder that we have appropriated $800
billion in total for PPP. So Congress gets a big ``E'' for
effort but a much smaller one for effectiveness and efficiency,
which is why this meeting is so very important, trying to drive
us to where we ought to be with good testimony.
I have a question for Ms. Frazier and then one for Ms.
Kennedy.
Ms. Frazier, you talked about extending the deadline beyond
March 31, which I am in support of. And then you said we should
refer to your written testimony for some of the ideas and
thoughts that you had along those lines. So I went to your
written testimony and was wondering if you could expand, Ms.
Frazier, on a couple of things: first-draw increase
eligibility, second-draw eligibility, second draw use of
proceeds, and the requirement that goes with that, as well as
the Schedule C borrowers and Schedule C filers, the
implications of that coming out of the SBA change.
Ms. FRAZIER. Thank you. I will try to remember all the
great questions that you have.
So I will begin with first-draw borrowers. Right now, if
someone were to apply for a first draw, they would not be
eligible for a second draw, nor would they be eligible to spend
the money in the 8-week period of time before the March 31
date. So maybe they didn't have an opportunity to do a first
draw for, you know, whether the bank didn't support them or
they didn't get the application in, wasn't aware. We really
firmly believe that they should have an opportunity for that
second draw to support their business. So expanding that time
and giving them the time to spend the money as the rules
predict.
But also, being able to go for an increase. Sometimes--for
instance, in my testimony, I remarked about a Schedule C
borrower who is a video production firm and sole proprietor who
outsources the help when he needs it. When he applied for his
first draw, he only was able to access $4,000. He needed much
more money, and the round one could do that because his
business was shut down. So we supported it with an SBA loan,
express loan of $16,000.
If the rules that are now in place for Schedule C had been
in place at the beginning for him, he would have been eligible
for that full $20,800. And it would now also be forgiven as
well. So he is left today with a $16,000 SBA loan that we have
turned out over a period of time.
He did come back for a second draw, again, early in the
process, because his business was still impacted, but the rules
charged. And so our suggestion is, is that businesses like that
are able to come back and reapply using that new calculation.
It is very important.
Mr. MFUME. And, Ms. Frazier, I am going to have to reclaim
my time because it is dwindling. I would appreciate, though, if
you could get back to me with expanded thoughts on those areas
that you listed in your testimony that I just referenced.
And, Ms. Kennedy, if you could just take a moment to talk
about section 1112 of the CARES Act which provided 6 months of
debt relief for existing 7(a) and 504 and microloan borrowers.
The 6-month period was extended under the Economic Aid Act,
which was passed in December.
Could you expand on the importance of section 1112 in terms
of current SBA borrowers, especially those with unforgiven
loans?
Ms. KENNEDY. Thank you so much, Congressman. The section
1112 payments were really a lifeline for these small business
borrowers. With the new economic relief aid act, the predicted
amount of funds were underfunded. We discovered that they were
underfunded, and some of those small businesses are not going
to get the SBA debt relief payments that they need most. These
are community advantage and microloan borrowers as well as SBA
504 and 7(a) borrowers. And the predicted amount that was
supposed to be 6 months or 3 months has shrunk down to 3 months
or 2 months of debt relief payment.
And so we are asking Congress--we know your intention--to
consider how we can close that gap and make sure those small
business borrowers who plan, thinking about inventory, and
adding additional employees, and supporting their operations
because of the debt relief payments, to be able to get those
resources so that they can continue to support their
communities.
Mr. MFUME. Thank you very much.
My time has expired. Thank you, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman from Minnesota, Mr.
Stauber, is recognized for 5 minutes.
Mr. STAUBER. Thank you. Thank you, Madam Chair. And I
appreciate the witnesses' testimony. Greatly appreciate it.
I just have a few quick questions for Ms. Frazier. Can you
elaborate on what the unresolved errors look like in the SBA
application as you mentioned in your testimony?
Ms. FRAZIER. The item that I am referring to is actually a
fraud situation. This is a first-time draw applicant for their
business. When the application was submitted to the SBA, it was
determined that the business employer identification number had
previously been used in the first round as a--for an EIDL loan
and a first-round draw. And so we have been trying to work
diligently through this process to find a way to get that
released off of her so that she could have her first-draw loan.
Mr. STAUBER. And next question, Ms. Frazier. What changes
need to be made to ensure that PPP isn't just a bridge to
nowhere and that business owners are able to take full
advantage of what the program has to offer?
Ms. FRAZIER. I think beyond the PPP, what was heard earlier
in other oral testimonies, I think continued support from the
SBDC, through the SBA, and also the SBIR programs to help those
businesses with their business plans, to help them look forward
and find a way, whether they need to change their business
model, adapt their business model, or just understand what I
would refer to as working on the business rather than in the
business. So I think funding those programs across the minority
groups, across all groups would be very helpful.
Mr. STAUBER. And then, in your opinion, are the traditional
SBA lending programs prepared to pick up where the PPP leaves
off?
Ms. FRAZIER. I believe so. And I also believe that, through
this process, many banks have become much more comfortable with
the SBA programs and will continue to make use of them going
forward, yes.
Mr. STAUBER. The last comment I would like to make is, as
you supported the PPP program in the lending institutions, some
of the redundancy for expediency was, you know, left off the,
you know, the normal way in which you provide a loan. Would you
agree or not that some of the items of redundancy as we get
through COVID, we can erase some of the redundancy that you
were asked to do by the Federal Government as a lending
institution? And if so, name just a few of those.
Ms. FRAZIER. May I ask for a clarification on redundancy?
Mr. STAUBER. So the PPP loans were given out in an
expedited manner, and some of the redundant--and I would say
some of the normal things you would do like, for instance, the
known customers in your respective banks, you--many people--or
many banks, rather, expedited the loans and not required to do
all the, quote, normal, end quote, you know, checks and
paperwork.
Are you prepared in any way to state that the way you did
the prior loans should be the same way going forward? And what
I am getting at is reducing redundancy, which is a third of
your time preparing for that examiner to come into your
business.
Ms. FRAZIER. I appreciate that. Thank you. I can speak for
my bank and a few others, more than a few others, that I have
talked to directly. But while the requirements of the PPP
program did not necessarily require us to submit what we
normally would for a full loan package, we did do a good bit of
the work behind it just to ensure. And the goal behind that was
just to ensure that the borrowers received 100 percent
forgiveness. And that is what is most important at the end of
the day, that they didn't have a tail of a loan hanging around
for them.
So going forward, I am not sure that I can answer off the
top of my head. I would like to give that question a little bit
more thought and get back to you, if that is okay.
Mr. STAUBER. That would be just fine. Thank you for your
testimony.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Minnesota, Mr. Phillips, the Chairman of
the Subcommittee on Oversight, Investigations, and Regulations,
is recognized for 5 minutes.
Mr. PHILLIPS. Thank you, Madam Chair, and to our witnesses
today.
I am going to follow up on my friend and colleague, Mr.
Mfume's, questioning about the 1112 program.
To Ms. Kennedy, you called the relief provided under
section 1112 under the CARES Act, quote, a lifeline to your
borrowers. That is absolutely true certainly for the small
business owners in my district and I presume in all of our
districts. That is why I am concerned about the gap in funding
to fulfill the December promise, the so-called December promise
that was made to businesses in the Economic Aid Act of last
year.
In fact, a smoothie bar in my district called DrinkFit was
approved for a 7(a) loan exactly 1 month after eligibility for
the first round of debt relief, after that ended, despite
starting the process a full year earlier. Then the second round
of additional months of relief under the Economic Aid Act added
eligibility on both sides of his approval date, leaving his
business in a literally no-man's land due to how that bill was
written.
So, Ms. Kennedy, can you speak to the challenges that the
businesses that you serve have had with the section 1112
program running out and what steps you would like to see we in
Congress take to make good on the promise that we made to the
employers?
Ms. KENNEDY. Thank you so much, Congressman. And I think
your last statement of make good on the promises. We as your
nonprofit community partners, we reached out to those
businesses and we let them know what was in the Economic Relief
Aid Act, and to go back to them and let them know, I am sorry,
there is not enough funds, that was really tough. And one of
our small businesses who is a catering company who has
absolutely been slammed because he cannot open his business, he
cannot run his business, he called and emphasized, If there is
anything that can be done to make sure that we can get those
payments, we would really, really appreciate it. We are trying
to pivot. We are trying to get our business back open, and we
need this assistance, and we thought we had it. So we were
planning, based on having those funds available or that debt
relief available, and now we need to figure out how we are
going to make this payment.
The need is great for those businesses, especially in
hardest hit industries. And we hope that Congress can figure
out how we can keep the promise that Congress made and intended
for these businesses through the section 1112 payments.
Mr. PHILLIPS. Thank you. You consider your message
delivered. We have open ears, and I wholeheartedly agree.
Ms. Simpson and Ms. Frazier, in your comments, you mention
the changes made by the Biden Administration to the loan amount
calculation for business owners relying on PPP including sole
proprietors, independent contractors, and the self-employed.
And as you mentioned, I am hearing from constituents myself who
say that the formula change has to be applied retroactively or
hundreds of thousands of business owners will be unable to
access the potential of an increased loan.
So a few questions. To what extent is money being left on
the table? How much more support would companies be able to tap
into if this issue were to be addressed? And is your
recommendation that Congress take steps to correct the issue,
or can that be done at the administrative level?
Perhaps, Ms. Simpson, you might begin.
Ms. SIMPSON. Thank you. We don't know exactly how much
money will be left on the table. But we do know, based on some
conversations we have had with CPAs, who have looked at their
client base of Schedule C filers, that the loan amount could be
as much as 50 percent more or doubled. So many small business
owners operate on a shoestring, and their net income, the
bottom line of their tax filing could show a loss or barely any
income at all. But if they are able to use this gross receipts
calculation that is now available to new Schedule C borrowers,
they would be able to access a substantial amount more, again,
up to the cap that the SBA has approved.
Mr. PHILLIPS. And just relative to the question about
Congress or at the administrative level to address it, do you
have thoughts on that subject?
Ms. SIMPSON. I am no constitutional expert, but it is my
understanding that SBA believes that that would require
congressional action.
Mr. PHILLIPS. And Ms. Frazier?
Ms. FRAZIER. Thank you. What I would like to do is look
back through our applications and give you a more firm number
and get back to you. But I do know that we have seen an
increase in the number of applications over the past week since
that calculation changed. And I echo what Ms. Simpson said that
I believe it could be as much as 50 percent, 60 percent
increase in loans for a good number of those businesses
overall.
So, again, I think that to have that--the feedback that we
have received thus far is that maybe the systems are not
adequately prepared to accommodate that increase and so maybe
there needs to be consideration to, I don't want to call it a
third draw, but a draw increase type format.
Mr. PHILLIPS. All right. Thanks, Ms. Frazier.
And I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Pennsylvania, Mr.
Meuser, for 5 minutes.
Mr. MEUSER. Thank you, Madam Chairwoman. Thank you very
much to all of our witnesses.
In the second round of PPP, one of the requirements was a
25 percent reduction in revenue in a quarter, a quarter of 2019
versus a quarter in 2020. I offered an amendment which would
allow to compare any 90-day period in 2019 versus 2020, as
opposed to a set calendar quarter.
Ms. Frazier, from a community banker's standpoint, would
this have been helpful to banks and in the interest of small
businesses if we could pass such a provision?
Ms. FRAZIER. Thank you. I think any time period that a
borrower could review and look at their business, it could be
helpful certainly for allowing more people access rather than
just the traditional calendar quarter.
Mr. MEUSER. But as far as you know, that wasn't a
significant problem for many?
Ms. FRAZIER. It would be difficult for me to answer that
fully, but we did not hear any commentary that it was a
problem.
Mr. MEUSER. Okay. From a community bank standpoint, once
again, do you feel our community banks can handle the pipeline
of loan requests that exist? My understanding is it is as high
as 50,000 nationwide that need to be facilitated between now
and March 31. Do community banks feel that is a problem?
Ms. FRAZIER. To my knowledge of all that I have talked to,
we do not feel that this is a problem. We really take pride in
serving the communities in this way.
Mr. MEUSER. Okay, great. Were there they sectors that you
believe, industry sectors such as restaurants, for instance,
that were underserved or PPP was not well-enough designed to
serve effectively?
Ms. FRAZIER. I cannot speak to that directly. I am not
aware of any that were not addressed or were not eligible. I do
believe--I will go back to the changes to the Schedule C where
moving to that gross receipts method, there were many
businesses that were operating at a net loss that were
ineligible in matters particularly about an industry but at
that net loss, and that changed the picture for those folks.
Mr. MEUSER. I thank you. And, Ms. Frazier, again, do
community banks have any concerns or many concerns with the
forgiveness procedures that are currently outlined for the
loans?
Ms. FRAZIER. No. It seems to be working smoothly for us,
and the process continues to improve. And with the most recent
application, simplified application for loans, $150,000 or
less, it is working smoothly.
Mr. MEUSER. That is great.
Will a loan that is outstanding that has not yet been
forgiven be used by the bank, for lack of a better way of
putting it, against the business' line of credit?
Ms. FRAZIER. No. I will speak only for my bank, is that the
process we used in helping the buyer access the PPP loans we
felt assured that they would have forgiveness. And so we
continued to, even though borrowers that have PPP loans, offer
them additional loans and support their business needs.
Mr. MEUSER. Okay. Well, those are very positive answers.
That is good to hear.
Are there any aspects of the PPP program that you feel are
too burdensome to lenders or to your customers that you feel we
should work on?
Ms. FRAZIER. I would go back to the errors and being able
to provide resources such that the process, if there is an
error identified or something is holding up the system, that we
have access to folks that can help us resolve it, because you
have the benefit of actually approving the loans or approving
the dollars. We have the very wonderful benefit of being able
to say the loan is approved and then forgiven. And so that is
our ultimate goal is to get to those answers for the borrowers
as quick as possible.
Mr. MEUSER. Last question. Do you think some of those
resources need to be dedicated to the SBA?
Ms. FRAZIER. It will help with the errors, yes.
Mr. MEUSER. Thank you. I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentlelady from Illinois, Ms. Newman, is recognized for
5 minutes.
Ms. NEWMAN. Well, good morning, everyone. And thank you,
Madam Chair and Ranking Member. I appreciate the time this
morning. And thank to you all our guests today. Very
informative and very helpful.
So this morning, I am directing my questions to Ms. Kennedy
and Ms. Simpson. The former gentleman was talking about loan
forgiveness, and I was going to tag off that.
So in my district, loan forgiveness has been a significant
problem. We have about 80 percent of our businesses in Illinois
Three are micro businesses, so under 20 employees and very
small revenue. So with that, they are busy running their
business, and getting their loans forgiven has been quite an
ordeal.
So I would love to ask Ms. Kennedy and Ms. Simpson, from
both of their perspectives, what can be done either by the SBA
or by Congress to make that easier for these loans to be
forgiven?
And I will start with Ms. Kennedy.
Ms. KENNEDY. Thank you so much. You know, we are CFI, a
community financial institution, as a CDC and micro lender and
CDFI. And the forgiveness process we have found to be fairly
straightforward, as Ms. Frazier said, especially for loans
under $150,000. She also mentioned people--the small businesses
are working in their business versus on their business. So
sometimes that takes a little time to get the documentation,
but the fact that the applications have been streamlined has
really made a critical difference in helping the small
businesses get that forgiveness. So we have had fairly good
experience with that and responsiveness from SBA when there has
been questions.
Ms. NEWMAN. Thank you.
And, Ms. Simpson, as a CPA, what guidance can you give
businesses to get the--because it is an onerous document. I
read through the 20-page document. It is fairly onerous for
people to get through. And luckily, we have a lot of kind CPAs
and now we have the community navigation program that will be
helpful in that regard. But what do you recommend to those
folks who are struggling through that without spending more
money?
Ms. SIMPSON. Thank you for the question. We have actually
worked with a technology provider to create an online platform
that helps small business borrowers work through the
forgiveness process using an online platform. So it avoids--
again, I love Excel. I think it is awesome. Not everyone agrees
with me.
So this tool allows small business owners to use a more
friendly environment to let them input information around their
payroll costs, their rent, their utilities, and the new
expanded costs that are now eligible.
It is really important for small business owners to know
that there are safe harbors within the forgiveness process. If
they were shut down, which so many of them were, they can avoid
some of the implications of a potential head count reduction.
So understanding that there are opportunities to streamline
this forgiveness process and that there are online tools to
help I think would be a good place to start, and I have got a
lot of resources that I can connect you with to get that
information out there.
Ms. NEWMAN. That would be much appreciated. It is a
significant problem in my district, so I would really
appreciate that. Thank you.
And let me just end by thanking the Committee for all their
great work on the SB program overall. It has helped my district
immensely, and I really appreciate it. I also would add that I
very much appreciate the fairness of the program, that it
addressed many industries. And I think that many industries is
important and that we emphasize those that were hurt the
hardest, such as stages and venues and restaurants. So I am
very happy with the broad breadth of the program. So thank you
all.
I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
The gentlelady from New York, Ms. Tenney, is recognized for
5 minutes.
Ms. TENNEY. Thank you, Madam Chair.
And good morning to everyone. It is such an honor to work
with you again on this Committee.
I want to thank the witnesses for their insight. This has
been really, really a productive and helpful meeting.
It has been a long, hard year, and our Nation is finally
turning the corner to fight this COVID-19 crisis. Small
businesses are the heart of the economy in New York's 22nd
District and have been hit extraordinarily hard during the
pandemic. In fact, 94 percent of the workers in the 22nd
District are employed by a small business, so they are really
one of the bright spots in our community, and the Paycheck
Protection Program has been a phenomenal lifesaver for us. It
has allowed many businesses in my district to continue to pay
their employees and to survive the shutdowns that we have
experienced in New York, especially upstate.
In New York, just for some information, PPP has provided
140,000 loans, totaling $12 billion, and has saved literally
hundreds of thousands of jobs. This has been an effective
COVID-19 relief program. And we are, as we know, to begin to
hopefully head into prepandemic life and to a better way
forward, opening our economy is obviously critical to this. But
there are many businesses that still need to benefit from PPP.
And just some good things that have happened: 397 jobs were
added to the economy in February, well beyond the 166,000
expected. The unemployment rate dropped to 6.2 percent, which
is a huge decrease from the peak that was 15 percent that we
experienced early in the pandemic. The nonpartisan
Congressional Budget Office has estimated that unemployment
will continue to fall as vaccines are more widely distributed.
I am also concerned about where we are going to go, not
just with PPP, but to make sure that our small businesses
continue to benefit from the Tax Cuts and Jobs Act as they move
forward into prepandemic life. I have heard from numerous
businesses that are concerned about that, as well as
maintaining and trying to deal with their new taxes, should
that happen during this crisis.
The Paycheck Protection Program will expire, as everyone
has talked about here today, on March 31. And the program has
nearly $128 billion of funding still available. While I do not
support all of the provisions of the American Rescue Plan, I
continue to believe that parts of that bill have merit,
particularly provisions that would continue to extend relief to
small businesses and individuals most in need. And i recognize
that, obviously, while we are entering into recovery, there are
many businesses who have done better than others and some who
have not. Some have done well. Some have, unfortunately, been
forced to close. But I am also a small business owner and I
understand the difficulties we face, and I am committed to
doing everything we can to make sure that everyone can return
to normal life and all businesses can thrive.
So one of my big questions is: As we head into this complex
tax situation--and, hopefully, the Tax Cuts and Jobs Act will
remain in place, because it has been cited as the single
biggest benefit to my small business community in the last 30
years--I wanted to ask and turn my attention to Ms. Simpson and
just to get her expertise as a CPA. Obviously, many businesses
are struggling with the complexity and confusion around PPP
that you have discussed. But how is it going to specifically
impact their taxes? Is there a way that maybe we can put the
online program you suggested for forgiveness? Can we place
that? Also, can we do something with dealing with the paperwork
for taxes as they are coming due right now?
Ms. SIMPSON. As a colleague said, the Tax Code may never be
less complex or may never be easy, but we can certainly strive
to make it less complex. And I believe that you find many
people who are willing to go along with that statement.
We are working with the IRS to get guidance on how the PPP
programs will impact the tax returns of many borrowers. We
thought the problem was solved when Congress allowed PPP
expense deductibility. However, there are complicating factors,
such as States that may not conform to that or they may conform
in different income caps. So lots of moving parts and pieces to
navigate across the entire country and how systems are
operating there.
We would be interested in talking about a resource that we
have provided that helps CPAs and small business owners
navigate the differences between Federal tax treatment and
State tax treatment. That is a document that we do have
available.
Ms. TENNEY. Thank you. My time is expired. But would that
be something that would be on an online portal?
Ms. SIMPSON. I can go back and talk to the team about that.
Ms. TENNEY. Great. Thank you so much.
Thank you, Madam Chair. I yield back.
Chairwoman VELAZQUEZ. The gentlelady from California, Ms.
Chu, is recognized for 5 minutes.
Ms. CHU. Thank you so much, Madam Chair.
First of all, thank you to Hilda Kennedy for being here.
Hilda Kennedy is my constituent, and she was one of the first
persons to contact my office about the need for a Paycheck
Protection Program set-aside for SBA micro lenders, certified
development corporations, and CDFIs.
And so thank you, Ms. Kennedy, for being here to provide
the perspective of a small community financial institution and
especially for the work you have done in my district to connect
underserved businesses to COVID relief. It was thanks to the
direct advocacy of constituents like you that made it so clear
to me that PPP needed a dedicated set-aside for underserved
businesses. And with the Chairwoman's support, we succeeded in
creating those set-asides for small banks and community
financial institutions like your business, AmPac. Those CFIs
have processed over 110,000 loans directly, but also provide
crucial guidance and resources to small businesses.
Can you talk about the kind of services that CDCs have
provided to small businesses and how they differ from what
larger commercial banks can offer?
Ms. KENNEDY. Thank you so much, Congresswoman, and great to
see you.
The difference between a CDC and a bank is we are mission-
based lenders. So our bottom line is the small businesses that
we serve, and we are not beholden to shareholders. We also
provide a lot of hand-holding for small businesses. So from
technical assistance support to webinars and training, to just
being available when the business plops in your office and just
needs to be reassured and needs to know how do I complete this
form, that is the role that we play.
And we have been working with a number of communities to
manage emergency relief programs, COVID-19, from counties to
State to other local governments. So we are in the community
and part of the mission of serving small businesses.
Ms. CHU. Well, thank you for that. And also, thank you for
mentioning the importance of a Community Advantage loan program
in delivering capital to underserved businesses over the long
term.
My legislation to give statutory authorization to this
program would increase the targeting of underserved markets and
explicitly include business owners of color in the program. And
it passed the House last December. It is a top priority of mine
to pass the bill into law this Congress.
And what is important is the success of the PPP set-aside
for CFIs show that the Community Advantage model works at scale
and is particularly powerful for reaching underserved and
underbanked communities. Can you describe your interest in
rejoining the program and talk about the way that these
Community Advantage loans would benefit the small business
communities that you serve?
Ms. KENNEDY. Thank you. I cannot overstate that because
those small businesses, especially economically disadvantaged
businesses, critically need this program. And as PPP stabilizes
these businesses, they are going to be ready to grow.
Underserved communities were hardest hit as a result of the
pandemic, and Community Advantage targets those communities. So
we really need to make the program permanent and need to open
up for new CA lenders. And we would absolutely want to be part
of that conversation. We have businesses who need the help, and
they call us for the help.
And as a Community Advantage lender, we will be able to
help this veteran who just called our office the other day. Got
some new government contracts but needs help from a program
many that Community Advantage could serve.
So thank you. We would love to support you in doing that.
Ms. CHU. Great. And you have also talked about the unique
challenges facing sole proprietors and PPP. They are more
likely to be women and people of color who lack access to
traditional banks. Can you say what issues they have and why
they need programs like yours?
Ms. KENNEDY. Well, those businesses by and large need more
hand-holding. They don't have access to great CPAs or
bookkeepers. They are putting their information on a
spreadsheet or maybe they have QuickBooks, but they need hand-
holding. And it is community-based lenders, mission-based
lenders who do that kind of hand-holding to make sure they can
get the resources that they need and then to be able to have
the resources to provide them.
So 80 percent of America's businesses are nonemployer
businesses. Those are the small Schedule C filers. They need
additional hand-holding. And mission-based lenders or community
banks really provide that kind of support that they will not
get at larger, nontraditional banks.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
The gentlelady from California, Mrs. Kim, is recognized for
5 minutes.
Ms. YOUNG KIM. Thank you, Chairwoman.
And I would also like to thank our Ranking Member
Luetkemeyer for holding this very, very important hearing
today.
With the Biden administration announcing five changes to
PPP on February 22 of this year, the looming March 31 deadline
does not give our small businesses the time to adjust to the
new guidelines issued by the SBA. I am also concerned that the
SBA is not forthcoming and transparent when it goes beyond the
statutory 90-day period to review the loan. The SBA should be
communicating with borrowers and lenders about the status of
the loan if it goes beyond the 90-day period.
And I would like to engage Ms. Frazier in the next round of
questioning here. To date, the SBA has cleared approximately 36
percent of all PPP loans through the forgiveness process.
However, certain loans that are not processed right away have
tended to let beyond the 90-day review window imposed by the
SBA. So has your institution dealt with any of these loan
reviewers taking longer than 90 days? And what steps can SBA
take to make the loan forgiveness process more efficient?
Ms. FRAZIER. Thank you for your question. We do have loans
that have been in the forgiveness portal for longer than 90
days. They tend to be the larger loans. They are taking longer.
And you identified correctly, there is a lack of communication
to the bank and to the borrower, which is causing a bit of
stress on the borrower's side because they are concerned about,
you know, what if it is not forgiven, what happens then. So we
completely agree with what your statements are.
I do think communication, where they are in the process,
what is happening, what they need, would be really helpful
overall in at least calming the fears of the borrowers and
allowing us to keep things moving forward and gathering the
information that they need. That would be the number one
request of what would need to be done.
Ms. YOUNG KIM. Well, following up, we have heard from
numerous sources and constituents about the delays in
processing loans due to SBA hold codes. Can you comment on your
experience with these hold codes and what the typical length of
delay looks like when addressing the code?
Ms. FRAZIER. The length of delay could be 2 days. It could
be 2 weeks. It could be, as the example I shared earlier, since
January 29. It really depends on our ability to access
information and what that hold code might be.
If it is something that we can resolve without the SBA,
maybe there is a piece of documentation missing or there is a
number that isn't quite right, we can get that done fairly
quickly inside just a day or two or few days. If it is
something that we need to rely on the SBA or really need to get
information from them to clarify what they are looking for, it
will take considerably longer over time.
Ms. YOUNG KIM. Well, do you believe extending the March 31
deadline could help alleviate the delays with the hold code?
Ms. FRAZIER. It could. It at least would be able to resolve
them and allow people to access the money that they have
applied for and be able to take care of those needs.
Ms. YOUNG KIM. Well, thank you.
With that, I will yield my time back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Illinois, Mr.
Schneider--welcome back to the committee--for 5 minutes.
Mr. SCHNEIDER. Thank you, Madam Chair. It is wonderful to
be back. I am excited to be working with you and my colleagues
on this important Committee. Thank you also for holding this
important hearing. I want to thank the staff for helping us
work through the challenges in these difficult times and
obviously thank our witnesses for sharing with us your
experiences and perspective as we try to understand this issue.
Very soon we will vote in the House on the Senate amendment
to the American Rescue Plan and send it to the President for
his signature. I am very grateful that this legislation
includes another $7.25 billion for the Paycheck Protection
Program and expands the businesses eligible for critical
funding.
Our goal with PPP has always been helping our businesses,
in particular our small businesses, get to the other side of
this pandemic. The American Rescue Plan will help assure that
when we get to the other side of the crisis, our small
businesses will benefit from a growing economy and hopefully be
able to chart a path for recovery and renewal. Obviously, that
seems to be putting us on that path, on beating back this
environment, but it is not certain when we will finally get to
full recovery mode. And that is why providing the support for
small businesses is so important.
For many businesses in our district, PPP funds have
literally made the difference between being able to hang on and
weather the struggles of the past year or having to close their
doors oftentimes for good.
I appreciate everyone's testimonies. I have heard and
shared with colleagues many of the same concerns that we
brought up here. I will come to the error codes, but I want to
talk first and maybe--Ms. Kennedy, you mentioned this. Others
said it in their testimony as well. As we look to the future,
people are trying to figure out how will they get through this
and then think about what is next after, because it is not easy
to go to the next place. You touched on the need for financial
education, technology education. What things, whether it is
your own group, CDC, that is doing this or the SBA, more
broadly, what type of education and training do you think is
most important to help businesses get to the recovery and chart
their future beyond that?
Ms. KENNEDY. Thank you, Congressman. I think one of the
things that we have said in this process is the wheat and the
tares have been separated. And we learned throughout this
process that business financial literacy, business acumen
literacy is so very critical. A lot of the small businesses
that we worked with really did not understand their financial
statements, didn't understand cash flow, didn't have reserves.
So the opportunity to pivot, the opportunity to adjust, they
couldn't do it because they didn't have that training.
So the SBA has incredible programs through the SBDC and
SCORE, as you have heard, and through partners like the CFIs,
CDCs, SBA micro lenders to provide that kind of technical
assistance to help people understand their technology and
understand their business financials. That literacy is really
critical.
Mr. SCHNEIDER. Great. Thank you. I think it is important.
We have been having webinars, the support for these companies,
entrepreneurs. Sole practitioners were just trying to provide
for their families. I think it is crucial.
I could talk to everyone about this, but I want to get to
these error codes as well. Time is of the essence. These
businesses are literally holding on by the day. It is important
and applications have been checked for errors and
inconsistencies that could show fraud. But, oftentimes, as has
been earlier noted, that there are sometimes flags that go up
that are not fraud but maybe a clerical error or something like
that.
Ms. Simpson, I will turn to you. You talked about how many
applications have been flagged incorrectly, and a business
losing a week or even 2 weeks could be the difference between
getting through this pandemic or not. Any thoughts you have on
how we can accelerate the process, not of making it easier for
people who abuse the system, but making it easier for people
who are incorrectly flagged to get through the system and get
the support and assistance they need?
Ms. SIMPSON. Thank you so much for the question. I think
transparency into what is causing a hold code and what
resolution steps concretely are needed to move beyond a hold
code is where so much time could be gained. Having a manual
that says, if you have got this error code, these are the exact
steps that either the borrower needs to take or the lender
needs to take, these are the absolute sources of information
that, if you supply, the hold code can be released and moved on
into a loan application process.
Mr. SCHNEIDER. Thank you. I am out of time. I could ask
everybody, but I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentlelady from Texas, Ms. Van Duyne, is recognized for
5 minutes.
Ms. VAN DUYNE. Thank you, Madam Chair and to the Ranking
Member, for holding this hearing today.
When I talk to small business owners in Texas, they tell me
two things: PPP was crucial for surviving the most challenging
days in the pandemic, and that they aren't looking for any more
handouts. They don't want to just hang on anymore. They want a
chance to earn a living. They want to be able to open their
doors and they want to be able to get their customer base back.
It has been an entire year that we have held businesses back in
the name of public health.
The bottom line is the best relief we can give these
businesses is to remove government-mandated constraints and
allow them to get back to work.
The Paycheck Protection Program was designed to be
temporary and targeted and, unfortunately, as demand for the
PPP has gone down, my colleagues across the aisle are still
eager to add more money to the program, even as over $100
billion dollars remains unused.
As a Committee, we need to be focused on fixing the
remaining issues of PPP, while also figuring out a way to bring
this pandemic-related program to an end.
And with that, Ms. Frazier, community bankers were on the
front lines of delivering PPP loans. In your testimony, you
cited that community banks made 60 percent of the first-round
PPP loans. Now almost a year later, how do you see this program
coming to an end and a transition to recovery being made?
Ms. FRAZIER. Thank you for your question. In round two, I
suspect that community bankers continue to be meeting in the
efforts of delivering the PPP loans. I believe the benefit of
that is the community bankers are able to really work with the
borrowers and be partners in helping them look forward.
But beyond PPP, I go back to I think there needs to be more
investment into the programs that can support these businesses
in helping them understand, as Ms. Kennedy said, their
financials, understand their business model, understand how
they can move forward as well and supporting them. Banks can
continue to support and partner with the businesses, helping
them grow, helping them understand the opportunities for them.
But there needs to be another party that can support them in
understanding their business overall.
Ms. VAN DUYNE. So as the Ranking Member of the Oversight,
Investigations, and Regulations Subcommittee, it is important
to me that we give our small businesses the best opportunity to
succeed coming out of the pandemic. And this means removing any
unnecessary red tape.
So, Ms. Frazier, again, are there any SBA regulations,
whether for PPP or other programs, that this Committee should
be reviewing to help our businesses recover?
Ms. FRAZIER. For the small businesses, the most recent
changes to the forgiveness application have been $50,000 or
less on those loans. I think that has been a huge benefit for
them and for others. The changes to the second draw has been a
big benefit. SBA as a whole, I think that continuing to work
with the community banks, to deploy the other programs and be
able to, as was noted earlier in the conversation, make those
approvals more timely and consistent would be very helpful.
Ms. VAN DUYNE. All right. Thank you very much.
I want to thank all of our witnesses for being with us
today.
And I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from New Jersey, Mr. Kim,
for 5 minutes.
Mr. KIM. Thank you, Chairwoman, for pulling us together
here.
I know many of us are looking forward to the warm weather
ahead, the summer ahead, and enjoy some outdoor activities.
Many of the businesses in my district are seasonal businesses
along the Jersey shore, and they had a really tough season
last----
[Audio malfunction.]
Chairwoman VELAZQUEZ. I am going to yield to the gentleman
from Florida, Mr. Donalds, because Mr. Kim is dealing with some
technical issues. We will get back to Mr. Kim.
Mr. Donalds.
Mr. DONALDS. All right. Thank you, Madam Chair.
Listen, this has actually been a great conversation. Madam
Chair, I thank you, and, you know, thanking the Ranking Member,
Mr. Luetkemeyer of Missouri, for really bringing us together as
we begin to unwind the PPP program. And I would stress,
members, we have to really look at beginning to unwind and
sunsetting this program.
It is clear that the program, obviously, we designed it to
challenge and to help the challenges of the COVID-19 crisis.
With the rate of vaccinations that are occurring in the United
States amongst the vulnerable populations, people over the age
of 65, also combined with the facts that you have many States
that have already begun reopening, we have to make a decision
here. And one of the clear decisions is, are we going to
continue, for how long, this loan guarantee program?
One of the things that actually really came out to me
during this testimony from all of the witnesses is that one of
the issues isn't really, per se, PPP in and of itself, but it
is an ongoing issue in the United States, and that is the lack
of community banks to address all of the financing needs of
small businesses and micro businesses in communities both rural
and urban and suburban across the United States.
And if this Congress is going to take this matter
seriously, we have to begin to take a look at the statutory and
regulatory environment upon which community banks have to
operate under, which is why, in part, we have seen an almost 50
percent decline in the amount of community banks in the United
States--in the United States, excuse me--since the passage of
Dodd-Frank more than a decade ago.
So I think it is time that this body begin to take even
more steps to allow the community banking industry to flourish
in the United States so we actually can address systematically
the issue of banking deserts, the issues of access to capital,
the issues to actually help all of our small businesses and
micro businesses, whether they happen to be led by women or
minorities or anybody else who operates businesses here in the
United States.
Really, I just have one question, and it is actually--is a
piggyback off of the question from Mrs. Kim of California, and
it is directed to Ms. Kennedy.
Ms. Kennedy, real briefly, if Congress decided to extend
the PPP program, how long of an extension do you think will be
needed to clear the current backlog to help those business
owners who have applied but they are waiting to get through
their hold codes and the like?
Ms. KENNEDY. Thank you so much for the question. You know,
my association, NADCO, we have not taken a firm position on the
amount of time, but from talking to our staff, we believe 60 to
90 days would give the time to address some of those error
codes and to try and make sure these Schedule C businesses get
the help that they need after getting the application just
approved on March 3
There are so many businesses who need to make sure that
they can qualify with the new guidelines of Schedule C, and
there are a number of businesses that need that help.
So from our personal advantage, a 60- to 90-day could
certainly help us to get through some of our backlog.
Mr. DONALDS. Thank you so much, Ms. Kennedy.
And, Ms. Frazier, same question to you. I know the banking
community obviously is looking very closely at this, and, you
know, obviously you guys have a continuing relationship with
SBA. As a former credit officer in a bank, I have always
enjoyed my dealings with the SBA--and, yes, I am being highly
sarcastic--but, you know, Ms. Frazier, with respect to your
industry group, what would you guys recommend to Congress if we
decided to actually make a temporary extension to unwind the
backlog?
Ms. FRAZIER. First of all, I want to thank you for your
support of community banks. Really appreciate that.
And, secondarily, in response to your question, we don't
have a specific timeline, but I think in agreement with Ms.
Kennedy's timeline, 60 to 90 days should certainly allow for
the errors to be resolved overall and to accommodate the
changes or allow the borrowers that are now eligible under the
new changes to get through the program.
Mr. DONALDS. All right. Thank you, Ms. Frazier.
Thank you, witnesses, for your time.
Thank you, Madam Chair. I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from New Jersey, Mr. Kim,
for 5 minutes.
Mr. KIM. Thank you. Thank you, Chairwoman. Hopefully, this
works better this time around.
But what I was just getting at was just, you know, the
seasonal businesses that we have in the Jersey shore. And in
December, Congress, we passed additional help for seasonal
businesses, allowing them to apply for an increase to their
first-draw PPP loan based on a 12-week period of their choosing
that better represents their normal revenue.
For a lot of seasonal businesses, this first-draw increase
has been a lifesaver. But I have heard from other seasonal
businesses in New Jersey that they have been turned away by
their first-draw lender, basically being told, quote, ``We are
not doing this,'' or, quote, ``There is too much paperwork.''
And, unfortunately, they don't have other options to go to a
different lender.
My office called one lender, one of the big banks, asked
why they were turned away, customers for first-draw increases,
and suddenly they started processing them.
We contacted another one, and after hearing that their
policy made by someone up the management train was not to
process these topoffs, I gave them a chance to correct the
record in advance of this hearing, but they still haven't
gotten back to me or processed that increase for a business on
the shore for about $70,000 that they are eligible for.
Who knows how many other businesses or others are
experiencing this or being turned away. I know we are asking a
lot of lenders right now, and that they worked hard to get all
this PPP money out over the past year, but Congress did
authorize first-draw increases to help seasonal businesses. And
I find it unacceptable that some lenders, particularly the
larger ones, are simply choosing not to do it.
I wanted to start with Ms. Simpson. Have you heard of this
happening, or are there other challenges that you are hearing
from seasonal businesses when it comes to receiving their
first-draw loan increases?
Ms. SIMPSON. Thank you for the question. We are--I am going
to pick up my phone. I apologize. My headphones died. I have
been on here for a while. So I apologize for the awkwardness.
But, yes, we have heard that borrowers are not having much
luck getting loan increases approved. So that is not an
isolated incident to the Jersey shore.
Mr. KIM. Yeah. This is something that I am just trying to
get a sense of, just that, you know, how--you know, how
significant this is and how widespread it is.
Maybe a followup with Ms. Kennedy or Ms. Frazier. As small
lenders, have you helped any customers with first-draw
increases? Just trying to get a sense of your perspective from
your end.
Ms. KENNEDY. We have tried to help small businesses with
first-draw increases, and that is part of where we get some of
the error codes and it becomes an issue for us. And that is why
this time that we are asking for to be able to work through
those and get resources on addressing the error and hold codes
would help us to be able to help more small businesses get that
increase and address some of those concerns.
Thank you for the question.
Mr. KIM. Ms. Frazier, anything you wanted to added on your
end?
Ms. FRAZIER. We have not had any seasonal businesses--we
haven't processed any PPP loans for seasonal businesses for
that increase. I can't speak directly to that.
We have had requests only from two borrowers to increase
their original loan. As part of the process, once it has been
reported on the form 1502 to the SBA, there is reluctance or
there is quite a bit of pushback on actually processing that
increase.
Mr. KIM. Okay. Well, thank you for that perspective,
something that I will be looking to follow up on.
I would also like to just highlight that SBA issued a new
interim final rule last week allowing sole proprietors or
Schedule C filers to use their gross revenue to calculate their
PPP loans. This was a welcomed change, finally making PPP
worthwhile for more of the smallest, most underserved
businesses. But as Ms. Frazier noted in her testimony,
borrowers who had already applied for the PPP loan before the
rule are being left with a smaller amount and are not being
made whole.
SBA is claiming they don't have the authority to make this
rule retroactive. And, Madam Chairwoman, I know you share my
view that sole proprietors who already took a PPP loan should
be able to use their gross income, and I ask to be able to work
with you and others together on a solution to make sure they
are treated fairly.
And so, with that, thank you, and I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Okay. With that, let me take this opportunity to thank all
our witnesses for their illuminating testimony. Your
experiences have given us insight into the current state of PPP
and the impact of reforms that the Biden administration put
into place. I am pleased to hear that these changes have helped
money reach underserved businesses, but it is clear that there
is more we must do.
On this committee, we will continue to work to make the
program more equitable and accessible for the smallest of small
businesses. The public health situation surrounding the virus
is improving, but we cannot let up. Small businesses still need
our help, and we must work to ensure this program is serving
their interests. That means continuing to evaluate the coverage
of PPP and making sure--or making the necessary tweaks to
maximize the program's reach and impact.
I ask unanimous consent that Members have 5 legislative
days to submit statements and supporting materials for the
record. Without objection, so ordered.
If there is no further business before the committee, we
are adjourned.
[Ms. Lisa Bombin did not submit her QFR's in a timely
manner.]
[Whereupon, at 12:16 p.m., the committee was adjourned.]
A P P E N D I X
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