[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
DUPLICATION, OVERLAP AND FRAGMENTATION IN FEDERAL FINANCIAL ASSISTANCE
PROGRAMS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY, AND TRADE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 6, 2014
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-054
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Scott Tipton................................................ 1
Hon. Patrick Murphy.............................................. 2
WITNESSES
Mr. William B. Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC................................................. 3
Ms. Ann Marie Mehlum, Associate Administrator, Office of Capital
Access, United States Small Business Administration,
Washington, DC................................................. 4
Ms. Lillian Salerno, Administrator, Rural Business-Cooperative
Service, United States Department of Agriculture, Washington,
DC............................................................. 6
APPENDIX
Prepared Statements:
Mr. William B. Shear, Director, Financial Markets and
Community Investment, United States Government
Accountability Office, Washington, DC...................... 20
Ms. Ann Marie Mehlum, Associate Administrator, Office of
Capital Access, United States Small Business
Administration, Washington, DC............................. 36
Ms. Lillian Salerno, Administrator, Rural Business-
Cooperative Service, United States Department of
Agriculture, Washington, DC................................ 39
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
DUPLICATION, OVERLAP AND FRAGMENTATION IN FEDERAL FINANCIAL ASSISTANCE
PROGRAMS
----------
THURSDAY, FEBRUARY 6, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Agriculture, Energy and Trade,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Scott Tipton
[chairman of the subcommittee] presiding.
Present: Representatives Tipton, Luetkemeyer, Mulvaney,
Hanna, and Murphy.
Chairman TIPTON. Good morning. Thank everyone for taking
the time to be with us today. I would like to be able to call
this hearing to order.
To bolster our economy, Congress recognizes that it is
essential, when possible, to reduce barriers to small business
growth. One area where small businesses consistently feel that
barriers exist is accessing capital. Capital is the lifeblood
of a business. It is essential for the growth and expansion of
every business. Without it, businesses are not able to develop
products, services, and to be able to market themselves or to
be able to hire employees. This is particularly true in rural
areas where there are limited resources available for
businesses.
In light of this, Congress created the Small Business
Administration 7(a) and 504 loan programs and the United States
Department of Agriculture Business and Industry Loan Program to
help businesses access capital. Despite this effort to help
entrepreneurs, the Government Accountability Office has found
that overlap exists between these programs, potentially
confusing the people they are intended to benefit and wasting
scarce taxpayer resources.
Along with identifying areas of overlap in government
financial assistance programs, GAO has offered recommendations
to federal government agencies on best practices to ensure that
programs are indeed meeting those goals.
Progress in eliminating overlap, however, is dependent on
the agencies placing a priority on implementing GAO's
recommendations and best practices. Not only will this help
agencies focus on programmatic improvements, but it will also
provide entrepreneurs and government resource partners with a
clear understanding of the goals of each program and how it can
best work for local businesses.
Unfortunately, the agencies have not taken GAO's
recommendations as seriously as we had hoped, and we still have
three programs, spread across two different federal agencies,
that can offer similar assistance in the form of government-
guaranteed loans to similar beneficiaries--in this case--small
businesses.
Today we are here to learn what steps agencies have taken
to implement GAO's recommendations to eliminate duplication in
the federal guaranteed lending programs and what legislative
changes, if any, are necessary to be able to assist these
agencies in their efforts to eliminate overlap and duplication.
With that, I would like to again thank all of our witnesses
for taking the time to be able to be here with us this morning,
and I now yield to Ranking Member Murphy for his opening
statement.
Mr. MURPHY. Thank you, Mr. Chairman. Excuse me for being a
couple minutes late. I was at the prayer breakfast this
morning, and beating the motorcade is quite a mission.
I also want to thank the witnesses for being here with us
all this morning and giving us an update on what Small Business
Administration (SBA) and the U.S. Department of Agriculture
(USDA) have done to reduce wasted taxpayer dollars as a result
of duplicative programs.
Mr. Shear, I am a big fan of the GAO and the work it does
to evaluate our government's performance and stewardship of
American resources. I was extremely concerned when I read the
report from a couple years ago identifying 53 potentially
overlapping programs across the SBA, USDA, Department of
Commerce, and the Department of Housing and Urban Development.
A handful of these 53 were SBA and USDA loan programs, and I
understand the two agencies along with the administration, have
been working to improve coordination of programs and services.
I am particularly interested to hear about these agencies'
efforts in two areas. The first is performance measurement. GAO
has made the case in a number of instances that agencies have
been unable to produce consistent, reliable, and meaningful
metrics on their programs' successes. This makes it incredibly
difficult for an oversight body like Congress to make
meaningful assessments and funding decisions.
My second area of interest is how SBA and USDA are
collaborating at the local level to improve services for
private lenders and for businesses in need of loans. This is
where the rubber meets the road. It makes no difference what
strategies are devised or MOUs signed at the headquarters level
in Washington, D.C., if they are not effectively implemented
across agencies at the local level. Now, almost two years after
GAO's initial report was issued, I want to see how SBA and
USDA's services are more effectively helping businesses grow
and generate new jobs.
I again thank the witnesses and look forward to your
testimony. Thank you.
Chairman TIPTON. Thank you, Mr. Murphy.
I believe you are all familiar with the timing lights that
we have. Start out as green. When there is one minute
remaining, will turn yellow. And then red, obviously, if you
can conclude your testimony at that time.
And if Committee members do have an opening statement, I
would ask that it be submitted for the record.
Our first witness is Bill Shear, the director of Financial
Markets and Community Investment team at the Government
Accountability Office. The Financial Markets team works to
improve the effectiveness of regulatory oversight and financial
and housing markets. Mr. Shear is a frequent guest before the
Small Business Committee based on his audit work for the Small
Business Administration.
Mr. Shear, I would like to thank you for taking the time to
be able to be here with us this morning. We look forward to
your testimony. Please begin.
STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY
OFFICE; ANN MARIE MEHLUM, ASSOCIATE ADMINISTRATOR, OFFICE OF
CAPITAL ACCESS, UNITED STATES SMALL BUSINESS ADMINISTRATION;
LILLIAN SALERNO, ADMINISTRATOR, RURAL BUSINESS-COOPERATIVE
SERVICE, UNITED STATES DEPARTMENT OF AGRICULTURE
STATEMENT OF WILLIAM B. SHEAR
Mr. SHEAR. Thank you.
Chairman Tipton, Ranking Member Murphy, and members of the
Subcommittee, I am pleased to be here today to discuss our work
on programs that provide financial assistance to entrepreneurs.
In August 2012, we reported information on 52 programs at
the Departments of Commerce, Housing and Urban Development,
Agriculture, and the Small Business Administration. This
statement is based on our report issued in August 2012 and
information we have received since from the four agencies and
the Office of Management and Budget.
In summary, we found the following:
First, federal programs that offer financial support to
entrepreneurs, including loans, are fragmented and overlap
based on the type of support they are authorized to offer and
the type of entrepreneur they are authorized to serve. The four
agencies and OMB have taken steps to collaborate more. However,
the four agencies have not implemented a number of good,
collaborative practices we have identified, such as
establishing compatible policies and procedures to better
support small businesses. The GPRA Modernization Act's cross-
cutting framework requires that agencies collaborate in order
to address issues, such as economic development, that transcend
more than one agency, and it directs agencies to describe how
they are working with each other to achieve their program
goals. Without enhanced collaboration, agencies may not be able
to make the best use of limited federal resources in the most
effective and efficient manner, and small businesses may
struggle to navigate these fragmented programs.
Our second major point is that while the four agencies
collect at least some information on program activities, they
do not track such information for many programs, a practice
that is not consistent with government standards for internal
controls. In addition, we found that the four agencies
conducted program evaluations of 13 of the 30 financial
assistance programs we reviewed. We found that SBA has
conducted program evaluation studies on five of its 10
programs. We also found that USDA has evaluated one of its
eight financial assistance programs, but the study did not
address the extent to which the program was achieving its
mission.
The GPRA Modernization Act requires agencies to set and
measure annual performance goals and recognizes the value of
program evaluations because they can help agencies assess
programs' effectiveness and improve program performance.
Without more robust program information, agencies may not be
able to administer programs in the most effective and efficient
manner, and scarce resources may be going toward programs that
are less effective.
We recommended that the four agencies and OMB explore
opportunities to enhance collaboration among programs and that
the four agencies track program information and conduct more
program evaluations. Since that report was issued, OMB has
established an interagency group, including Commerce, SBA,
USDA, and others, that aims to streamline existing programs,
improve cooperation among and within agencies, ease
entrepreneurs' access to the programs, and increase data-based
evaluations of program performance. SBA has told us that it has
undertaken a modernization project for its resource partner
data collection system. USDA has told us that it has completed
initiatives to improve the quality of performance measurement.
Going forward, we will continue to obtain updates on the
agencies' progress. We will report on the actions taken by the
agencies as we do for other areas included in our mandated work
addressing federal programs with fragmentation, overlap, and
duplication.
Chairman Tipton and Ranking Member Murphy, this concludes
my prepared statement. I would be happy to answer any
questions.
Chairman TIPTON. Thank you, Mr. Shear.
Our next witness is Ann Marie Mehlum, the Associate
Administrator for Capital Access at the Small Business
Administration. In this capacity, Ms. Mehlum is responsible for
overseeing SBA's financial assistance programs, and prior to
joining the SBA, Ms. Mehlum served as CEO and director of
Summit Bank in Eugene, Oregon.
I appreciate you being here with us today, and please
begin.
STATEMENT OF ANN MARIE MEHLUM
Ms. MEHLUM. Chairman Tipton, Ranking Member Murphy, and
distinguished members of the Subcommittee, thank you for
inviting me to testify on SBA's ongoing work to expand access
to capital for small businesses, while enhancing collaboration
and avoiding duplication with other government programs. I
greatly appreciate the opportunity to discuss our lending
products and successful partnerships. As a former community
banker from a largely rural state, it is truly an honor to be
before this Subcommittee and alongside my colleagues from USDA
and GAO. Together, we are committed to providing all
entrepreneurs with the tools they need to start and grow
companies and create jobs.
Small businesses are the engine of our economy and one of
our country's greatest assets. They employ half of the private
sector workforce and create two out of every three net new
private sector jobs. And we know that innovation is not limited
to Boston and Silicon Valley. It is happening in rural and
industrial communities--from Florida to Colorado, and in my
home state of Oregon. That is why at SBA we are focused on
reaching all entrepreneurs in every part of this country.
In my role as associate administrator for Capital Access, I
rely on my 30-year career in commercial lending to help SBA
better support small businesses. It is our top priority to fill
market gaps by providing access to capital to small firms whose
financing needs would not be met without our guarantee. Our
loan guarantee programs have made it possible for lenders to
support more businesses in rural and underserved communities.
In Fiscal Year 2013, approximately 15 percent of all of our
7(a) loans and 16 percent of total dollars went to rural
entrepreneurs.
In order to reach even more small businesses in rural
markets and ensure effective collaboration, SBA has signed
several Memorandums of Understanding (MOU) with other agencies,
including USDA. Leveraging SBA's nationwide network of district
offices and resource partners, as well as USDA's extensive
footprint of field staff in nearly every county in America, we
are able to advise potential small business borrowers and
lenders on both SBA and USDA loan programs. Through our
collaboration, we educate each other on our respective products
and services, exchange marketing materials, and host joint
lender training sessions.
We have seen the benefits of our collaboration through the
success of countless small businesses like the Maupin Market in
Maupin, Oregon. In 2011, the only grocery store in this 500-
person town was slated to close, which would have forced
residents to travel over 40 miles to buy food. Fortunately, a
young couple, a local couple, Allison and Randy Bechtol,
decided to reopen the store. Unable to obtain conventional
financing, the Bechtols turned to the local Small Business
Development Center (SBDC) for help. The SBDC connected them
with a community bank that identified SBA's 504 Loan Program
and USDA Rural Development's Intermediary Relending Program as
strong matches for their capital needs. With a $279,000 SBA-
guaranteed loan and a separate loan for $100,000 through USDA's
program, these entrepreneurs were able to remodel the old
building and reopen the new Maupin Market. They created seven
good-paying jobs in the community and provided new
opportunities for the local farmers.
SBA also supports rural small businesses through our Small
Loan Advantage (SLA) loans. One of our signature low-dollar
loan programs, SLA is designed to expand access to loans up to
$350,000. Drawing on extensive input from our lending partners,
we significantly reduced the paperwork and simplified the
application process for this program. In order to make these
loans even more attractive and less costly for lenders, we
allow banks to use their own collateral, closing, and
disbursing guidelines.
At SBA, we are committed to collaborating with our federal,
regional, and state partners to fill market gaps and ensure
that all entrepreneurs have the resources and training they
need to turn great ideas into growing businesses. By taking an
inclusive view of entrepreneurship, one that expands access and
opportunity to more communities, we can spur new business
formation, innovation, job creation, and help build strong
regional economies throughout America.
Thank you again for the opportunity to be here, and I look
forward to answering your questions.
Chairman TIPTON. Thank you very much, Ms. Mehlum, for your
testimony.
Our final witness is Lillian Salerno, Administrator for the
Rural Business-Cooperative Service within the Office of Rural
Development at the United States Department of Agriculture. Ms.
Salerno was first appointed as Acting Administrator in
September of 2012 and became Administrator in July of 2013.
Prior to joining the Rural Business Cooperative Service, Ms.
Salerno served as Special Assistant in the Rural Housing
Services.
Welcome to the Small Business Subcommittee, and thank you
for taking the time to be with us here today. Please continue.
STATEMENT OF LILLIAN SALERNO
Ms. SALERNO. Chairman Tipton, Ranking Member Murphy, and
members of the Subcommittee, thank you for this opportunity to
discuss USDA's Business and Industry Guaranteed Loan program
and the economic opportunity it provides to rural America.
I am pleased to report that outreach and collaboration and
leveraging of resources, both nationally and at the local
level, are top priorities for this administration and are at
the center of the USDA delivery system. As a former
entrepreneur and rural small business owner, I am particularly
aware of the value of federal financial assistance programs. In
fact, the company I started in 1994 began with an SBIR grant
and still employs approximately 150 persons in rural North
Texas and supports additional jobs for suppliers and
distributors in this small town.
We appreciate the other agencies' programs provide to
assist rural businesses. While both the B&I program and the SBA
7(a) program seek to ensure small businesses have capital,
Congress has determined that B&I serves the distinct purpose of
providing resources to rural businesses that have greater
individual capital needs.
Let me emphasize the distinguishing feature of our program
is providing assistance to businesses in those rural
communities. Working with local lenders in rural communities,
the B&I program is a critical component to increasing
opportunities for rural Americans. Our field staff has worked
closely with SBA offices for many years. The MOU signed late
last year extended and broadened these opportunities for
collaboration. USDA and SBA worked together to identify the
best funding options for businesses. For example, the Iowa Cold
Storage Company in Altoona, Iowa, recently needed capital to
expand their business. Although USDA had previously provided a
$17 million B&I loan to the company for the construction of the
warehouse cold storage facility, USDA and SBA determined that
the best option now for the company was a $3 million SBA loan
to accomplish this mission and expansion. By working together,
our agencies are able to increase access to private investment
capital for small businesses.
Since the GAO report, we have improved the process for
tracking, verifying, and reporting of the performance measures.
We have issued and put into action a guidance document to our
field offices. We have implemented an improved process for
reviewing and verifying the data, and we have created a
standardized format for reporting this data. Furthermore,
because of the budget certainty you have afforded us, we are
now able to make additional improvements, including IT
enhancements, making it easier for our lenders and
intermediaries to report our requested performance measures.
In sum, no other federal agency is positioned as well as we
are at USDA to meet the needs of rural America. Our extensive
physical presence in rural communities distinguishes us from
other federal agencies. We have the expertise and experience
about the economic, social, and geographical characteristics of
the rural communities to better serve them. Through our 47
state offices and 400 local offices and service centers, we
overcome the physical distance barriers that alone can hinder
service delivery in these areas.
I appreciate the opportunity to testify before you
alongside my colleagues from SBA and GAO. We are committed to
helping entrepreneurs and businesses succeed, and I welcome the
chance to engage in a dialogue. Thank you for your support of
rural business programs, and I am happy to answer questions.
Chairman TIPTON. Thanks so much.
We will start out with the questioning. I would like to
begin with Director Shear. Based on your audit, can a small
business located in a rural area obtain financial assistance
from either the SBA's 7(a) program or the SBA's 504 program or
through the USDA Business and Industry Loan program?
Mr. SHEAR. The answer is generally yes, that the 7(a)
program funds a broad range of activities, including working
capital. The 504 program is more specific in that it finances
fixed assets, so it funds a smaller subset of activities.
Business and industry loans are available for a very broad
range of activities. So the idea is that the programs certainly
overlap in terms of the types of financial assistance they can
provide.
Chairman TIPTON. Okay. So we have got the two different
programs, and this may well be a better question maybe for
administrators. Do we have a streamlining process in terms of
those applications? Because one of the great challenges that we
hear from small businesses is the confusing nature of actually
trying to be able to access capital even though the intent of
the programs is obviously good.
Ms. Mehlum?
Ms. MEHLUM. Chairman Tipton, I would like to answer that
from the lender perspective. Most of my career has been in the
private sector as a lender and then as a chief credit
administrator, and then as a CEO of a bank. And the reality
from that perspective was that it was very helpful when we
sometimes had more than one option to help a small business
that we could not finance with conventional underwriting. If we
had a customer that clearly we believed they were going to be
successful but we could not do it with our underwriting
guidelines, they did not have enough experience maybe or enough
capital or whatever the deficit was, then we would look to the
SBA or the USDA programs. And sometimes we had both options.
Not always. But I always felt that was complementary. And it
was helpful in some cases, like the example that I mentioned in
my testimony where we could use a combination. So I feel like,
from a lender's standpoint, having complementary loan programs
from SBA and USDA is not a negative issue; it is a positive
situation.
Chairman TIPTON. Ms. Salerno.
Ms. SALERNO. I would just like to add as a small business
person, when one goes to get financing, the bank is your
intermediary. We are committed to educating the bank about our
suite of services. We have been doing a good job. I think we
can do a better job and we are committed to do that. But I will
give you one example. In Colorado, Mr. Chairman, we closed a
$1.8 million guaranteed loan program with a company called
White Rock Specialties. The bank that we were working with was
a community bank and the company also needed a working capital.
The SBA provided for that, coordinating with our field staff,
by working with the bank and giving a cap line of credit for
$250,000. So we have examples of those kind of things and we
believe that is working.
Chairman TIPTON. Mr. Shear, the SBA and the USDA singed a
MOU on August 22, 2013, and I would like to know in your view
does this agreement clearly define what steps the agencies will
take to be able to eliminate duplication?
Mr. SHEAR. The MOU is a positive step. We have looked for
the use of other practices such as establishment of clearly
defined roles and responsibilities and strategies for
leveraging resources. There are some other actions we looked
at. We know from USDA that for a number of years, even
preceding our August 2012 report, it reached out to its state
offices to report on what collaboration they have with local
SBA district offices. So it seems like there is activity that I
will call ``check the box,'' and there is interaction going on.
As the witness said, there are joint training-type sessions
going on, but in terms of duplication, to the degree that it
might exist and certainly dealing with fragmented programs, we
are looking for some movement to try to address how can these
programs be better positioned so that if they are
complementary, they are complementing each other in the right
way. For those programs that substitute for each other--which
are the best ones? Or in other words how do you get businesses
to be served by the program that can serve them best?
Chairman TIPTON. So you are not seeing any movement?
Mr. SHEAR. We are not seeing a lot of evidence. So, for
example, as part of this mandate, as an agency we reach out to
agencies to obtain information on what actions they have taken.
And just taken from the last submissions that we have received
very recently from SBA and USDA, there is not anything in those
submissions that would suggest to us that anything more than
that they are tracking how many offices are collaborating with
each other. We do not see movement or any suggestions as far as
coming up with joint strategies or trying to coordinate
policies and procedures that could make the programs serve
rural areas better.
Chairman TIPTON. Right. Thank you.
Are you working on joint strategies?
Ms. SALERNO. Yes. Thank you for the question.
As Mr. Shear said, we are doing a variety of joint
trainings and webinars, and I think part of the challenge for
us is we are field based. We do best when we do not do things
from up here, when we do stuff in the states. And so we really
rely on our district offices and our field offices to work out
those. So for us to give a one direction from Washington about
how to work in rural Colorado or rural Missouri we think is a
mistake. And so we do let our field offices work out these
strategies, but we do ask them to report, and we have received
very good evidence which we have submitted to Mr. Shear
regarding those roundtable and joint lender trainings.
Chairman TIPTON. Thank you.
I want to be respectful of our other members here. I will
probably like to be able to come back to this but I would like
to follow up again real quickly with Mr. Shear. In your
testimony, you stated that you were not able to access data to
determine whether duplication actually exists. What data do you
need that is not available, and why is it not collected?
Mr. SHEAR. Especially with respect to duplication, I know
the focus today is on financial assistance programs, but what
we have found on counseling and training programs, and what we
have found just generally is that when somebody walks in to an
SBA district office or a USDA state office, the kind of
information that is available is based on who is coming in
where. So basically, a lot of times it is which office a small
business owner might walk into that will determine which
financial assistance program they are participating in.
So what is collected on technical assistance in terms of
who is being served based on geographic location, some
characteristics would be very useful on that. From a standpoint
of the financial assistance programs, the way I would
characterize it for SBA, is that SBA has at its disposal
extremely rich data on who is being served, and where they are
being served. We have certainly used SBA loan level data to
conduct analysis by geocoding data. So data for the SBA
financial assistance programs is not a problem. It is the
question of SBA's willingness to use it in collaboration with
its efforts with USDA.
With USDA, we asked ourselves when we did this work, should
we be asking for loan level data from USDA to try to geocode as
we have done for SBA, and try to look at who is serving where?
Specifically, the USDA data on the financial assistance
programs like Business and Industry loans is very granulated.
It is quite good in that sense, but with the way it is
collected, we question whether the data is collected in a way
that is conducive to such analysis. You can run ad hoc reports
but we question whether it is collected in such a way that it
would really be conducive to say who is serving which borrowers
where in rural-defined areas. So I think USDA has further to
come in that respect in comparison with SBA. SBA, it is more
of, I think, a willingness to use the data it has at its
disposal.
Chairman TIPTON. Thank you.
I will ask one more and then yield to the ranking member
and then come back after the other members have asked their
questions.
Mr. Shear, the SBA recently decided to end several pilot
programs, including one aimed at being able to reach out to
rural businesses. I noted in the testimony that it was at 15
percent. That is a drop. Was this pilot program effective at
reaching small businesses in rural areas?
Mr. SHEAR. Here are you referring to Rural Advantage?
Chairman TIPTON. Yes.
Mr. SHEAR. Yes. I cannot answer that question, and I do not
know how well SBA can answer that question. The pilot program
we recently looked at was a pilot program called Patriot
Express to serve the veteran community. One of the things that
we observe when SBA does have pilot programs or initiatives
like this is that there really is not the evaluation around who
is being served by the program. So like with Rural Advantage,
it is here that there can be reasons why USDA might be able to
serve certain rural areas better than SBA, and this is part of
why we think at the national level there should be more
collaboration looking at who the programs are serving. The
potential problem with SBA going into Rural Advantage is that
it might be trying to expand its presence in an area without
first asking the questions working with USDA, and working with
this Committee and the Congress in terms of saying where should
we be placing our resources? Who should we be serving? Because
otherwise you are acting with incomplete information when you
are introducing more programs and more initiatives.
Chairman TIPTON. Do you have any comment on that?
Ms. MEHLUM. Chairman Tipton, I would like to mention in the
Small Rural Loan Advantage program, it was a program that
started initially only for lenders that did a few loans which
would imply that they were in rural areas, and it was a little
clunky. It was not as streamlined. We actually have morphed
that program into a much more streamlined loan called Small
Loan Advantage, which I talked about. And I do have statistics
on how those loans have grown and how they have also grown in
rural areas. So basically, we have just made improvements to
that program. We also have studied immensely our programs,
including the veterans' programs as to who they serve and how
effective they are and how do we make them more effective. And
we are doing that work all the time.
Chairman TIPTON. Okay. Is there some concern, and then I
will wrap up here, but I am a little concerned, that rural
lending, it dropped from 25 percent of the portfolio to 15
percent of the portfolio. What is the reason for the decline?
Ms. MEHLUM. That is information that I would be happy to go
look for and bring back to you.
Chairman TIPTON. I think, going back to your original
testimony, being able to reach out into the rural communities,
noting the job creation potential, and the entrepreneurialship
that is there. With that kind of a drop, I think there is some
concern in terms of some of the access to capital to be able to
grow these businesses. Coming out of a rural area, I can tell
you we are still in a recession.
Ms. MEHLUM. Absolutely. And I am not sure it is a drop in
total dollars. You said it was a drop in our portfolio. It
might be that we are growing in other areas more. So I would
like to get back to you on that. That is an important question.
Chairman TIPTON. Is it your sense that these rural small
businesses now have greater access to capital?
Ms. MEHLUM. Than----
Chairman TIPTON. Before.
Ms. MEHLUM.--five years ago? Yes. I would say yes.
Chairman TIPTON. Okay. Great. Thanks.
With that I will yield to Ranking Member Murphy.
Mr. MURPHY. Thank you, Mr. Chairman.
Mr. Shear, when you were with us last March you noted the
importance of key metrics and data points to really evaluate
some of the programs, see what is working, what is not working.
I am wondering from Ms. Salerno first, if you could talk
about some of the key metrics that you use at USDA and perhaps
how long you have been using them and what you think about how
it is going.
Ms. SALERNO. Certainly, thank you for the question.
We use the data, first of all, to determine if we are
meeting certain benchmarks, such as reaching underserved
populations, and if we are complying with our initiatives. For
example, local foods is an initiative. Growing bio economies is
an initiative. We use it to also help reduce waste, fraud, and
abuse by conducting cross-program verification. As a guarantor,
our data and our data collection system is based on a GLS
system, a guaranteed loan system, where we rely on banks to
give us the information.
So there are about 62 data points. The question is whether
or not we can access certain data. Over the course of a 25- to
3-year loan, that is a lot of data for the history of a loan.
As mentioned earlier, we are storing loan data in a guaranteed
loan system. We analyze it on a monthly to quarterly basis,
depending on what we are looking for. We can run a report
either in a spreadsheet form or we can ask for information on a
specific initiative, for example, how many local food projects
are in a given area. For our secretary, the local food
initiative is very important. We can find out how many local
food initiatives we are doing in Colorado or Missouri or
Florida. We certainly can improve what we are doing, and with
budget certainty, part of our objective is to enhance our IT
systems. Furthermore, one of our hires is going to be a person
dedicated to data integrity because we have not previously been
able to put the kind of funds we would like into that part of
the operation.
Mr. MURPHY. So you are more concerned with the data
collection than you are the analysis of the data?
Ms. SALERNO. Yes.
Mr. MURPHY. Okay.
Ms. SALERNO. What we have done in response to the hearing
last year is go back and verify the data. We guaranteed a
little less than 400 or about 420 loans in 2013. When we
collected the data we were looking for an opportunity to make
sure that it was consistent with the types of investments that
were made. We sent anything that fell outside the norm back to
the states and to the lenders to validate. Now we have 2013
data cleaned up and we now are using that kind of operation to
verify our 2014 data. And I would just like to add that because
of our field presence, we are able to go and validate. So that
field person can go and drive by and make sure that the
manufacturer does indeed have the 200 jobs that they submitted
that they were going to create.
Mr. MURPHY. Okay.
Ms. Mehlum, can you talk about some of the metrics that you
use and that have been successful?
Ms. MEHLUM. Could you specify exactly what you are asking?
Mr. MURPHY. Some of the key metrics you used to evaluate
SBA, GAO pointed out this morning and then last March that that
is one of the keys to----
Ms. MEHLUM. If the programs are successful?
Mr. MURPHY. Yes.
Ms. MEHLUM. One of the things that we measure pilot
programs against is just the amount of lending that we do on
our flagship programs, the 7(a) Guarantee program and the 504
program. One of the things that we found in our veterans'
initiative--Veterans Express, which sunset because we have a
better loan now for veterans called SBA Veterans Advantage
Loan--is that we found that in those pilot programs there would
be something about them that was not as attractive or workable
for the borrower or the lender. And so we track the totals. We
talk to bankers. We talk to borrowers. And if the programs are
not growing, we look for ways to either enhance them and fix
them or modify existing programs to fill that gap.
Mr. MURPHY. So how often do you analyze that data? Is that
a monthly or----
Ms. MEHLUM. Weekly, daily, weekly, monthly, quarterly. It
just depends. We are looking at, I mean, one of the things I
was very, very pleasantly surprised--not surprised, I really
did not have a preconceived notion, but when I came to the SBA
six months ago, how much data is collected and analyzed and
reviewed consistently, constantly. There is an amazing amount
of analysis of data that goes on at SBA.
Mr. MURPHY. And are you working with the USDA on what is
working, what is not working?
Ms. MEHLUM. We are definitely working with them in the
field of the programs. What are working together? Where are
they complementary? We do share marketing materials. This last
MOU has put more, as Mr. Shear has said, it has put more sort
of specifics into how we collaborate, and that has been an
evolving process, and I feel like we are making very good
progress there.
Mr. MURPHY. I do not want to oversimplify it too much, but
Mr. Shear, it seems you would like more data points, more
analysis, more key metrics to analyze, and Ms. Salerno, you
pointed out some of the best improvements you have had have
been really at the local level, some of the training. Is there
a bridge there that needs to be crossed? I mean, I can
completely understand at the local level--that is where the
rubber meets the road, so of course that is where you would see
the biggest difference. And inputting all the data is annoying,
it is a nuisance, and reviewing it--but that is how Mr. Shear
and us get to review it. Have you had that discussion?
Ms. SALERNO. Yes, we have. Lots of discussion. I mean, if
we had all the resources in the world, would we put more money
there? Yes, we would. Where we are able to, we made sure that
the data was correct. We had a session where our leadership
reviewed the files that were inputted in GLS and said, you
know, if there was a zero and we had given a million dollar
loan, why did that not create a job? And so we went back to
make sure that it had. We looked at what fell out of the norm.
We think with the budget certainty, we now are able to allocate
resources, and we feel very confident that we are going to do
better, and we have been speaking a lot to my associate
administrator colleague about ways I can learn from them, but
we have not had those resources. We have been depending on our
field staff which have done the best job that they can with the
resources they had.
Mr. MURPHY. Can you use SBA's data systems and anlaysis?
Are the systems integrated?
Ms. SALERNO. My understanding is they are not integrated.
Ms. MEHLUM. The systems are not integrated but we are, as I
think someone mentioned early on, we are involved, both of us.
I have not been personally involved with it but one of my
deputies has been involved with a meeting of several agencies
which is working on this issue of data sharing, making it--it
is not that we do not share data. If anybody asks us for data,
we give it to them, but they are trying to come up with systems
to make that data sharing as part of the process. And I know
that that is ongoing.
Mr. MURPHY. Mr. Shear, any data?
Mr. SHEAR. I think that what the associate administrator is
referring to is the OMB working group that is addressing these
issues. And as I said in my statement, the OMB-led group is
addressing the types of issues that we think should be
addressed, so we think it is very positive that this working
group has been put into place. What we have not seen yet is
progress. We look forward to working with OMB and the agencies
in their attempt to facilitate a more strategic approach. In
this case, regarding the topic of this hearing, serving rural
areas in terms of small businesses in rural areas seeking
financial assistance. So we certainly hope it moves in that
direction. So far we know that meetings have occurred. We have
not seen a real framework established yet, but that is what we
are looking for and hoping evolves over time. We just do not
have evidence of it yet.
One disappointment I will just state with the two agencies
here is while we received feedback from OMB when we reached out
and asked what progress has been made, we found it surprising
that when SBA and USDA came back to us for information on what
has occurred, there was no reference to that OMB task group. So
I certainly hope that both agencies and all the agencies
involved with OMB are really committed to the purpose of that
task group and that they make progress.
Mr. MURPHY. Okay. Thank you. I appreciate it.
Thank you, Mr. Chairman.
Chairman TIPTON. Thank you, Mr. Murphy.
I now recognize Mr. Luetkemeyer for his questions.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
I come from a town with 300 people, so it does not get any
more rural than that. So this is an important hearing to me
from the standpoint of being able to help the small businesses
and agricultural folks in my district.
Mr. Shear, do you get a lot of complaints with regards to
these two agencies with regards to the lack of their ability to
address rural access to credit concerns?
Mr. SHEAR. I would not call it complaints. It is not like
you have people who are seeking loans who call up GAO, like we
are a complaint line.
Mr. LUETKEMEYER. Well, I was talking about the
collaboration you are talking about, the overlap. Do you get
complaints from different groups, different entities saying,
hey, you know, these programs are nice but they are not working
very well?
Mr. SHEAR. What we have as we pointed out in our report, we
really did an extensive effort to reach out to rural areas, in
particular areas that are served by the Appalachian Regional
Commission, the Appalachian Authority, the Delta Regional
Authority and other entities involved with rural economic
development. What we found in what they were reporting to us
was the difficulty, especially with counseling and training-
type resources, how hard it is for small businesses to navigate
those areas. So I would say that was the major concern that we
heard as an outgrowth of really reaching out to those who
represent rural areas.
Mr. LUETKEMEYER. Ms. Salerno, you made a comment a while
ago with regards to the validation and I guess basically
oversight over the funds that are given out or guaranteed. Can
you give me a little bit of an insight as to your process? Do
you work with the lending institution and they take the lead,
and therefore, they do all of the underwriting, they do all of
the servicing of this? What part do you play or what action do
you take in this whole process that allows some oversight by
you? Or are you totally relying on them?
Ms. SALERNO. Thank you for the question.
We are very fortunate that we have our field offices and
they go through the entire process with the business with the
lender. But we are, of course, the guarantee for the lender, so
the lender has the paperwork at the state level. We, of course,
want everything to happen at the state level, not to have to
come up to Washington and potentially delay loans. The
application only comes up to D.C. when the request is above a
certain dollar amount. And so the business program officer
works through the loan documents with the business, which is
really important in rural American where folks maybe have
special needs because of the low density of population.
Sometimes they need to work with the city or the small town in
order to get easements or ways to work with the rural co-op.
There are just all kinds of needs there. That is why our field
structure is so important. And what happens from the data that
is given by the bank, it is self-reported, so the business
tells the bank, you know, I need a $5 million loan. I am going
to put manufacturing into a small town in Missouri. I am going
to create 100 jobs over the next two years. That is self-
reporting. And then it comes back to us and we validate that
information at the national office.
Mr. LUETKEMEYER. Coming from the financial service
community, as I recall, you have a checklist that you go
through that the institution has to complete to be able to do
things and I think it is the same way with SBA if I am not
mistaken. So there is some coordination there. I was just kind
of curious from the standpoint that, you know, it is very
important that you continue to work with and verify and provide
some oversight because at the end of the day we have got
taxpayer dollars at risk here. So the lending institution
probably has a better feel for what is going on there but
certainly interaction is very important.
As I was listening to the previous discussion here, one of
the concerns that I had was the collection and review of data.
It is wonderful to get that but if we do not act on it, what
good is it?
It sounds like in the last discussion we talked about this
committee that was put together, and apparently there is some
reaction to some of that information that was collected. Can
you elaborate on it just a little bit, Ms. Mehlum?
Ms. MEHLUM. Can I elaborate on what is happening with that
committee?
Mr. LUETKEMEYER. Yes. You had a committee that had some--we
were kind of working on some issues here, and I think there was
an inference that there was actually something being done.
Ms. MEHLUM. My understanding is that that committee is
working on this data issue of how to connect databases, how to
utilize data and share the data so that we can use it more
comprehensively.
Mr. LUETKEMEYER. But there is some action.
Ms. MEHLUM. My understanding is that those meetings are----
Mr. LUETKEMEYER. Those meetings are on the recommendations
and the findings of the committee?
Ms. MEHLUM. Yes.
Mr. LUETKEMEYER. Okay.
I have one more question before I am out of time here if I
can indulge the chairman for just one second. Question for the
two administrators. Each of your programs have caps as to how
much you can guarantee per loan and what you have per program.
Are those caps adequate? Are you utilizing the full amount of
the money that is at your disposal? Should they be lowered? Do
you have excess funds or should they be raised? Just a comment.
Ms. SALERNO. I will happily answer that. We get our money.
The rural sector needs more money. There is a huge issue about
access to capital. That is what we hear at these roundtables
and that is the kind of information we want to be able to give
back to you is that there are still access to capital issues.
Mr. LUETKEMEYER. Of the percentage of good loans that are
applied for, how many do you not make because you are out of
funds or cannot guarantee it?
Ms. SALERNO. Two things. Thank you for the question. One is
I am not sure I can give you that information but I will do my
best and I will have to supplement that.
Mr. LUETKEMEYER. Just round figures. It does not have to be
perfect.
Ms. SALERNO. Well, the issue is because of the last year
and the uncertainty of funding, there was a lot of starting and
stopping, and that was really hurtful to small businesses in
rural America. So now with the certainty of funding I think I
will be able to answer that better. I just do not want to give
you non-information. But we had businesses that were hurt
because we did not have a pipeline of funds.
Mr. LUETKEMEYER. Ms. Mehlum, could you?
Ms. MEHLUM. I think our levels are at the right levels
right now. We have not had to recently not make loans because
of capital levels.
Mr. LUETKEMEYER. Okay, perfect. Thank you very much. Thank
you, Mr. Chairman, for your indulgence.
Chairman TIPTON. Mr. Mulvaney. No questions? Okay.
I would like to be able to follow up just a little bit
because I would like to get down to the purpose of the hearing.
You have demonstrated that you are serving a need, being able
to help small businesses in a variety of different areas, but
when we go back to the crux of the hearing, the GAO had made
recommendations that the financial assistance programs and the
report of the GAO that was released in August of 2012, that has
been over a year and a half ago. Following this, our Committee
held a progress report hearing a year ago where your agencies
testified about your commitment to being able to increase the
collaboration. And we are back here again today asking what is
being done to address the collaboration and to be able to
actually respond to the GAO's actual recommendations. Are we
making progress as opposed to continuing just to hold meetings
and to be able to get our people together? What is the goal?
What is the timeline? When is it going to be able to be
achieved?
Ms. Salerno or Ms. Mehlum?
Ms. MEHLUM. I will answer to the best of my ability.
My understanding is that the MOU is a three-year MOU with a
possibility to renew. I may be incorrect on that. But we are
continuing to work on all the issues in the MOU. It is about
six or seven months old. We have definitely made progress in
the field where they are doing joint trainings. We are sharing
marketing materials and all that. And I feel like this is an
MOU that is being taken very seriously at the SBA and we are
all in agreement with it. It is the right thing to do. I am
very proud that the 7(a) program is a zero subsidy program and
we want it to continue and be sustainable, and it will be more
effective as long as we can continue to do it cost-effectively
and collaboratively.
Chairman TIPTON. Ms. Salerno?
Ms. SALERNO. Thanks for the question. I think we will have
a better opportunity. I cannot promise anything. All I can do
is we are doing the best we can with the information that we
have, but I do think because of this consistent meeting that is
going on about the technical assistance and trying to set
metrics that is being really shepherded by OMB which all of our
agencies participate in, I think they have got some pilots
going on, so we will get that information. But for what we know
how to do with our two programs for the Business and Industry
Loan and the SB 7(a), I think we have made a commitment to make
sure that we share data. We want to learn at USDA if there is a
better way to collect data that is more in line with theirs, we
want to learn that. But we do have challenges, but I do think
because of the budget certainty we will be better able to
address this.
Chairman TIPTON. Well, just to be able to get a specific,
can you point? Because you have been collaborating, you have
been talking about it. What duplication have you identified?
Ms. MEHLUM. I would like to answer that by saying I am not
aware that we have specifically asked that question at a broad,
strategic level. I think those are the questions we have been
working on the field.
Chairman TIPTON. Is this not the point though of the GAO
report? We were talking about duplication.
Ms. MEHLUM. As I mentioned when I first started, there is
duplication and there is complementary products. And I do not
think there is an exact duplication of specific product that is
really the issue. And I have misunderstood that if that is what
we are talking about.
Chairman TIPTON. Do you have any comment, Mr. Shear?
Mr. SHEAR. In our work, we did not find any evidence of
duplication, meaning that you had multiple programs, multiple
agencies undertaking the same activities, serving the same
beneficiaries, and it does not mean that duplication does not
exist. We did not find it. There are issues over how well from
an internal control standpoint the agencies are following where
the services are going.
Chairman TIPTON. That was the point of the question.
Mr. SHEAR. And so that is basically where we do not know.
What we do observe for sure is that it just seems like there
are inefficiencies associated with overlap and fragmentation
and ability to evaluate how programs are serving their
missions, and that is really a major focus for us, and we
certainly hope, and it seems to be a focus of this OMB-led
working group.
Chairman TIPTON. We have business people that sit on this
panel, obviously. Coming out and you are always looking to be
able to create those efficiencies, to be able to streamline it
to make sure that you are not getting overlap, not trying to go
after the same customers, I guess, if you will. And during this
process now over this last year and a half, in terms of trying
to be able to identify, be able to get some of this
collaboration going on, do you have any kind of a number of
what we have been able to save the American taxpayer in terms
of dollars through your efforts?
Ms. MEHLUM. That is a really good question, and I would
like to go back and see if we can tackle that. That would be an
interesting question to look at because certainly that would be
something that we would all be wanting to know and that is what
we are all working towards.
Chairman TIPTON. Are you aware of any, Ms. Salerno?
Ms. SALERNO. From a USDA perspective, we look at
duplication and strengthening of services and Secretary Vilsack
has been very robust on his cost-savings measures which he has
reported as $1.2 billion in tax dollars saved by the
department. So our continued regionalization and ability to
deliver services by streamlining at USDA, that is the only
number that I know to give you.
Chairman TIPTON. And we would like to follow up. Mr.
Luetkemeyer brought it up. I had the opportunity to sit on a
bank board before and we had loan officers, there is a
checklist, and Ms. Salerno, you had mentioned that at the
district offices you were having to be able to count on these
folks to be able to create some awareness. Is that an actual
checklist item for the district offices when they are working
with local lenders saying here are the programs that are
available? And by the way, the USDA has these programs that are
available. Is that being done as an actual checklist item for
your people in the field?
Ms. SALERNO. Thanks for the question.
If I am understanding the question correctly, at our USDA
program level, our program officers in the field, they make
contact with their SBA counterparts and they have their suite
of services. So yes, it would be something where we show all of
SBA's loan programs as well as ours. I mean, I have been to
enough of those meetings. That is for sure going on. That is
for sure at the state and local level that is going on.
Chairman TIPTON. Okay. And that is being expressed fully to
the lenders, to the private lenders?
Ms. SALERNO. That has been where we have really been the
most successful, for the rural space, those lenders, I mean,
those big banks are not coming to rural Colorado. They are not
there to give that capital, so what SBA has been doing very
well for our rural folks, which I know they care about also, is
to make sure some of those big banks know about the rural
services that we do and vice versa. And mostly those community
banks now know about the SBA services, our services, and are
able to help the customer more.
Chairman TIPTON. Just a couple more questions just out of
curiosity. On the USDA, it does not, to my understanding at
least, track loans based on the size of a business. In order
for it to be able to eliminate duplication and overlap in our
rural areas, would this information be useful to determine how
many small businesses utilize the USDA as opposed to the SBA
resources?
Ms. SALERNO. I hope I am understanding the question, Mr.
Chairman.
The USDA, when we were tracking the size, we have the
number of projected jobs that will come out of any kind of loan
that we do. So we are able to monitor that and do monitor that
because we monitor the financial statements that are given to
the bank that are given to us of that business that we have
given a loan to.
Chairman TIPTON. I think the other component of this is
strictly the size of the business. We talked about the $1.8
million, a little bigger business than some others. Is that
information being tracked as well?
Ms. SALERNO. We certainly have the size of the business,
but you are absolutely right. We help not just small
businesses. I mean, we have helped businesses that have 500,000
employees in rural American because we do manufacturing loans,
so then you are asking if we track it. We track the number of
employees. I do not know if we are tracking it in the same way
that SBA is but I can get back with you on that and submit
that.
Chairman TIPTON. I appreciate that.
I guess my last question is I have got a note here that
November 2012, the USDA reported to GAO that over the next two
years the USDA would conduct a broader analysis of its program
data to assess program impact. And we are now in 2014. That
started in 2012. Can you just give a status report of that
effort?
Ms. SALERNO. Yes. We have done what I described. Because of
our budgets, we have not been able to put the kind of resources
towards that. It is in our budget now to put those kind of
resources, so we are still working on it. We have put into
action the guidance document that I talked about and tried to
make it more standardized, but we have not put the resources
towards the IT enhancements that will allow us to do I think
what we reported in 2012.
Chairman TIPTON. Okay. So basically from 2012 we had not
made any real progress to straighten it out or really move on
it?
Ms. SALERNO. I believe that we made progress by actually
validating the data which we did in 2013, and we have advised
our field offices to make sure that they complied with the
guidance document. We certainly can improve and plan on.
Chairman TIPTON. Okay. Well, I would like to thank you all,
unless any of our other members have any questions. I would
like to thank you for participating today. One of the big
issues--I think we all have a responsibility for those of us
that are serving here in Washington--is to be looking out for
the American taxpayer. And that is the idea of trying to be
able to address some of the concerns that have been put forward
by the GAO, and make sure we move beyond meetings into action
on behalf of those taxpayers. Because when we are talking about
budgets, the best way to be able to have the resources is to be
able to assure the American people that we are doing the very
best we can to be able to not only grow the economy but be able
to handle those limited resources well.
I do thank all of you for taking the time to be
participants with us here today. We know that capital is
critical for these small businesses in our rural areas and
these programs can play an incredibly important role in helping
businesses access that capital. However, these programs that
confuse businesses and owners and waste taxpayer resources, I
believe we can agree that it simply cannot be tolerated.
Agencies need to be able to find a way to be able to work
together, and I hope today's hearing shows some of the
importance of being able to bring together the issues and some
of the challenges in terms of programs that are offered by the
USDA and the SBA, and their efforts to be able to implement
those GAO recommendations into best practices for true
collaboration.
With that, I would ask unanimous consent that members have
five legislative days to be able to submit statements and
supporting materials for the record.
Without objection, so ordered.
With that, this hearing is now adjourned. Thank you.
[Whereupon, at 11:07 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Tipton, Ranking Member Murphy, and distinguished
Members of the Subcommittee. Thank you for inviting me to
testify on SBA's ongoing work to expand access to capital for
small businesses, while enhancing collaboration and avoiding
duplication with other government programs. I greatly
appreciate the opportunity to discuss our lending products and
successful partnerships across the federal government. As a
former lender from a largely rural state, it is truly an honor
to be before this Subcommittee and alongside my colleagues from
USDA and GAO. Together, we are committed to providing all
entrepreneurs with the tools they need to start and grow
companies and create jobs.
Small businesses are the engine of our economy and one of
our country's greatest assets. They employ half of the private
sector workforce and create two out of every three net new
private sector jobs. And at SBA, we know that innovation is
hardly limited to Boston and San Francisco. It's happening in
rural and industrial communities--in the South and across the
Midwest. It's happening in Florida and Colorado and in my home
state of Oregon. That is why we are focused on ensuring that
the economic benefits of entrepreneurship reach every corner of
America.
In my role as Associate Administrator for Capital Access. I
rely on my 30-year career in commercial lending to inform how
SBA can better support small businesses across the country. It
is our top priority to fill market gaps and expand
opportunities for companies that are often overlooked by
investors and financial institutions. Over the past five years,
our loan guarantee programs have made is possible for lenders
to support more small businesses in rural and underserved
communities. In Fiscal Year 2013 alone, approximately 15
percent of all 7(a) loans and 16 percent of total dollars went
to rural entrepreneurs.
In order to reach even more small businesses in rural
markets and ensure effective collaboration across the federal
government, SBA has signed several Memorandums of Understanding
(MOU) with other agencies, including USDA. Leveraging SBA's
nationwide network of district offices and resource partners as
well as USDA's extensive footprint of field staff in nearly
every county in America, we are able to advise potential small
business borrowers and lenders on both SBA and USDA loan
programs. Through our collaboration, we educate each other's
staff on our respective products and services, exchange
marketing materials, and host joint lender training.
We have already seen the benefits of our collaboration
through the success of countless small businesses like the
Maupin Market in Maupin, Oregon. In 2011, the only grocery
store in this 500-person town was slated to close, forcing
residents to travel over 40 miles to go food shopping. Maupin
was en route to becoming a food desert when Allison and Randy
Bechtol decided to reopen the store. Unable to obtain
conventional financing, the Bechtols turned to the local Small
Business Development Center (SBDC) for help. The SBDC connected
the Bechtols with a community bank that identified SBA's 504
Loan Program and USDA Rural Development's Intermediary
Relending Program as strong matches for their capital needs.
With a $279,000 SBA-guaranteed loan and a separate loan for
$100,000 through USDA's Intermediary Relending Program, the
Bechtols were able to remodel the old building and reopen the
new Maupin Market. They have created seven good-paying jobs in
the community and provided new business opportunities for the
local farmers.
The success of SBA's strategic alliance with USDA has led
to similar partnerships with the Delta Regional Authority (DRA)
and the Appalachian Regional Commission (ARC). We are also
working with the White House Rural Council on a number of
initiatives to increase investment in rural communities.
Specifically, we announced a new commitment with USDA to expand
access to capital and provide targeted training and counseling
services in rural markets.
SBA also supports rural small businesses through our Small
Loan Advantage (SLA) platform. One of our signature low-dollar
loan programs, SLA makes loans up to $350,000 more attractive
and less costly for banks. After receiving feedback from our
lending partners on how to make the program more effective, we
simplified the application process, allowed banks to use their
own collateral, closing, and dispersing guidelines, and
expanded the program to include all lenders.
We also redesigned our CAPLines program, which provides
working-capital to small businesses to help them meet contract
obligations and fill work orders. This streamlined, and
therefore less costly, process allows banks to reach smaller
and more rural businesses. In FY 2012 and FY 2013, we
experienced a significant increase in activity in this program
with over 1,200 loans approved for more than $920 million. That
is up from just 300 loans and $255 million approved during the
three prior fiscal years combined.
At SBA, and across the Administration, we are committed to
collaborating with our federal partners to fill market gaps for
loans in underserved communities and ensure that all
entrepreneurs have the resources and training they need to turn
great ideas into growing businesses. By taking an inclusive
view of entrepreneurship, one that expands access and
opportunity to more communities, we can spur new business
formation, innovation, job creation, and build strong regional
economies throughout America.
Thank you again for the opportunity to be here, and I look
forward to answering your questions.
Statement of Lillian Salerno, Administrator, Rural Business-
Cooperative Services
United States Department of Agriculture
Before the House Committee on Small Business Subcommittee on
Agriculture, Energy and Trade
February 06, 2014
Chairman Tipton, Ranking Member Murphy, and members of the
subcommittee, I am pleased to have this opportunity to discuss,
as a follow-up to last year's hearing on the Government
Accountability Office (GAO) report on ``Entrepreneurial
Assistance,'' the coordination of the Business and Industry
(B&I) Guaranteed Loan program with the Small Business
Administration's (SBA) 7(a) program and improvements we have
made in our performance measure verification. Rural Business-
Cooperative Service (RBCS) is committed to ensuring that
entrepreneurs in rural communities have every opportunity to
succeed.
As a former entrepreneur and rural small business owner, I
have firsthand knowledge of the value of Federal financial
assistance program. In fact, the medical device company I
founded in 1994 began with a Small Business Innovation Research
(SBIR) grant and has grown to approximately 150 employees in
rural north Texas.
In the August 2012 report on Entrepreneurial Assistance,
GAO recommended that we do more to coordinate our programs and
that we help entrepreneurs more efficiently identify the
program that can assist them. Outreach and collaboration with
other Federal agencies regarding our programs here at a
national level and educating and encouraging our field staff to
work with other Federal agencies in promoting our programs at a
local level have been top priorities for me since I became
Administrator in July 2013.
B&I Guaranteed Loan Program
Rural communities have historically lacked adequate access
to private investment capital to support business development
and job creation. The B&I Guaranteed Loan program helps to
improve the economic condition of rural communities by
enhancing the existing private credit structure through loan
guarantees. Over the course of the past year, RBCS has provided
$939 million in B&I loan guarantees to over 400 businesses
across the country.
We appreciate that other agencies' programs may provide
assistance to rural businesses. However, the distinguishing and
critical feature of RBCS programs in general, and the B&I
guaranteed loan program in particular, is our mission--to
provide assistance to rural businesses in rural communities.
While both the B&I program and the Small Business
Administration's 7(a) loan program have the goal of ensuring
small businesses have capital, Congress has determined that B&I
serves the distinct purpose of providing resources to rural
businesses that have greater individual capital needs. The B&I
program is a critical component to increasing economic
opportunity and improving life for rural Americans. The
delivery system of our agency, with personnel and offices in
rural areas, is particularly suited to assisting rural
businesses and helping them to succeed.
Furthermore, the universe of borrowers is broader for
participants under the B&I program. The 7(a) program limits
eligible borrowers to for-profit businesses, while the B&I
program allows eligible borrowers to be for-profit,
cooperatives, non-profit, individuals, corporations, or
partnerships located in rural areas with a population of less
than 50,000. Also, the guarantee loan limits for the B&I
program are greater than those for the 7(a) program.
USDA & SBA Coordination
My agency works diligently to ensure effective coordination
of the B&I program (as well as our other programs) with our
partners, especially with SBA. While the National Office meets
with SBA frequently because of our participation on
Administration-wide, cross-cutting initiatives, the
coordination is even more evident at the state and local
levels. Although our field staff has worked closely with SBA
offices for many years, the Memorandum of Understanding (MOU)
signed by former SBA Administrator Karen Mills and Department
of Agriculture (USDA) Secretary Thomas J. Vilsack in September
of last year provides an opportunity for even more
collaboration. The intent of this MOU is to benefit small
businesses and agricultural producers through a joint effort
and to encourage sustainable growth and development through
financial assistance from both SBA and USDA.
On a recent visit to a Small Business Lender roundtable
with bankers and small businesses, the State SBA representative
highlighted the efficacy of the new MOU in an email to me,
which reads in part:
At the district level, we cut through red tape and
bureaucracy much of the time because our leaders give
us that ability. The MOU lays out the guide--which is
very good in that it gives more details and specific
achievements desired, but lets us design specific
applications to fit our markets. I think this could be
a best practice for other government programs to
``virtually'' consolidate ourselves around those common
areas we naturally have. This is achieved without the
cost and time involved in a full-blown reorganization
and consolidation but achieves the same thing faster
and better.
Further, my agency, together with SBA, is committed to
providing $175 million in micro-capital to rural small
businesses and small farms over Fiscal Years (FY) 2013 and 2014
to support entrepreneurship in rural communities across
America. This commitment represents a ten percent increase from
FY 2012 micro-lending levels at both agencies. Through our
coordination with SBA, we are able to increase access to
private investment capital for small rural businesses, which
helps ensure that rural communities are economically thriving
and can compete in the global economy, This coordination
includes outreach and promoting each agency's programs,
resulting in better access for entrepreneurs and, in a number
of instances, jointly funded projects. For example, last year,
a lender in Sumter, South Carolina, was able to leverage both
the B&I program and the SBA 7(a) program to help finance two
projects that involved common ownership. Because the SBA 7(a)
program has an exposure cap of $5 million, the lender needed to
finance the remaining $6.5 million using the B&I guaranteed
loan program.
Measuring Performance
RBCS has been, and continues to be, focused on improving
our metrics by improving processes, increasing human resources,
and investing in Information Technology. In the past year, RBCS
has taken steps to improve its data collection and data
validation. In the second quarter of FY 2013, we published
guidance to our field offices to provide clarification and
guidance regarding the collection, tracking recording, and
verifying of jobs created/saved and other measures of impacts
and outcomes of RBCS programs (e.g., energy saved or produced,
producers of local foods projects).
The Agency undertook an extensive data validation effort of
FY 2013 data. National Office personnel reviewed all of the
performance measures for FY 2013, identifying in particular
data that were deemed ``outliers.'' The data was distributed to
our state offices and program offices for validation. We asked
all offices to carefully review the data and to pay special
attention to the information identified by the National Office
as ``outliers.'' Once the data was confirmed or amended by the
state and program offices it was resubmitted to the National
Office.
Concurrently, we created a specific spreadsheet that will
be updated on a periodic basis to compile performance measures.
The spreadsheet will improve the consistency and accuracy of
our performance outcomes when we submit reports to the various
oversight organizations, such as OMB, USDA's Office of Budget
and Policy Analysis (OBPA), the Office of the Inspector General
(OIG), and the Government Accountability Office (GAO).
For FY 2014, we are now able to undertake several actions
as we have certainty in the amount of funding made available to
us. Our first priority is a critical hire to oversee our data
collection and verification activities. We are also revising
the personnel description of one of our senior staff to address
reporting consistency. Further, we will begin making IT
enhancements including making it easier for our lenders and
intermediaries to report the performance measures we request of
them.
Importance of RBCS Programs
As Administrator, I have had the opportunity to meet with
many small business owners and listen to their struggles to
acquire needed capital to start, improve, or develop their
businesses. Numerous small business owners have told me that
without the B&I program the bank would not have made the loan.
To more efficiently and effectively deliver our programs,
RBCS utilizes ten team leaders and two regional leaders. This
allows us to better coordinate activities with the states and
most importantly to assist rural Americans on a ``horizontal''
basis rather than the slower, less efficient ``vertical''
basis. For FY 2014, we are proposing to hire additional people.
These additional positions will enable RBCS to further focus
our resources on the economic needs at both the regional and
community levels, thereby ensuring that our resources support
the rural development needs specific to that region or
community.
In sum, no other Federal agency is positioned as well as we
are to meet the needs of rural America. Our extensive physical
presence in rural communities distinguishes us from other
Federal programs. We have the expertise and experience with the
particular economic, social, and geographic characteristics of
rural communities. Through our 47 State Offices and hundreds of
local offices and service centers, we overcome the physical
distance barriers that alone can hinder service delivery in
rural areas.
Concluding Remarks
I appreciate the opportunity to testify before members of
the Committee alongside colleagues from SBA and GAO. We are
committed to helping entrepreneurs and small businesses
succeed. As you can see from the testimony above, we work well
together and I anticipate that we will continue to do so in the
future. I welcome the chance to engage in a dialog on even more
ways we can further support American competiveness and growth.
Thank you for your support of Rural Business programs. And at
this time, I am happy to answer your questions.