[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




                 STRENGTHENING SBA'S 7(A) LOAN PROGRAM

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                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            JANUARY 17, 2018

                               __________


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                               

            Small Business Committee Document Number 115-051
              Available via the GPO Website: www.fdsys.gov
              
              
              
              
              
              
              
              
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                  U.S. GOVERNMENT PUBLISHING OFFICE 
				 
28-251                        WASHINGTON : 2018                 
		              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        TRENT KELLY, Mississippi
                             ROD BLUM, Iowa
                         JAMES COMER, Kentucky
                 JENNIFFER GONZALEZ-COLON, Puerto Rico
                    BRIAN FITZPATRICK, Pennsylvania
                         ROGER MARSHALL, Kansas
                      RALPH NORMAN, South Carolina
                           JOHN CURTIS, Utah
               NYDIA VELAZQUEZ, New York, Ranking Member
                       DWIGHT EVANS, Pennsylvania
                       STEPHANIE MURPHY, Florida
                        AL LAWSON, JR., Florida
                         YVETTE CLARK, New York
                          JUDY CHU, California
                       ALMA ADAMS, North Carolina
                      ADRIANO ESPAILLAT, New York
                        BRAD SCHNEIDER, Illinois
                                 VACANT

               Kevin Fitzpatrick, Majority Staff Director
      Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                     Adam Minehardt, Staff Director
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Ms. Cindy Blankenship, Vice Chairman, Bank of the West, 
  Grapevine, TX, testifying on behalf of the Independent 
  Community Bankers of America...................................     5
Ms. Patricia Husic, President & CEO, Centric Financial 
  Corporation, Harrisburg, PA, testifying on behalf of the 
  American Bankers Association...................................     6
Ms. Sonya McDonald, Executive Vice President and Chief Lending 
  Officer, Randolph-Brooks Federal Credit Union, Universal City, 
  TX, testifying on behalf of the National Association of 
  Federally-Insured Credit Unions................................     8
Mr. Tony Wilkinson, President & CEO, National Association of 
  Government Guaranteed Lenders, Washington, DC..................     9

                                APPENDIX

Prepared Statements:
    Ms. Cindy Blankenship, Vice Chairman, Bank of the West, 
      Grapevine, TX, testifying on behalf of the Independent 
      Community Bankers of America...............................    29
    Ms. Patricia Husic, President & CEO, Centric Financial 
      Corporation, Harrisburg, PA, testifying on behalf of the 
      American Bankers Association...............................    34
    Ms. Sonya McDonald, Executive Vice President and Chief 
      Lending Officer, Randolph-Brooks Federal Credit Union, 
      Universal City, TX, testifying on behalf of the National 
      Association of Federally-Insured Credit Unions.............    41
    Mr. Tony Wilkinson, President & CEO, National Association of 
      Government Guaranteed Lenders, Washington, DC..............    58
Questions and Answers for the Record:
    Questions from Hon. Nydiazquez and Responses from Patricia 
      Husic......................................................    70
    Questions from Hon. Nydia Velazquez and Responses from Tony 
      Wilkinson..................................................    71
Additional Material for the Record:
    CBA - Consumer Bankers Association...........................    76
    H.R. 4743....................................................    78
    Huntington Bancshares Incorporated...........................    96
    ICBA - Independent Community Bankers of America..............    98
    Mission Lenders Working Group................................   100
    NAFCU - National Association of Federally-Insured Credit 
      Unions.....................................................   104
    NAGGL - National Association of Government Guaranted Lenders.   106

 
                 STRENGTHENING SBA'S 7(A) LOAN PROGRAM

                              ----------                              


                      WEDNESDAY, JANUARY 17, 2018

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:00 a.m., in Room 
2360, Rayburn House Office Building. Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, Brat, Radewagen, Kelly, 
Blum, Comer, Gonzalez-Colon, Fitzpatrick, Marshall, Curtis, 
Velazquez, Evans, Murphy, Lawson, Clarke, and Chu.
    Chairman CHABOT. We appreciate everybody being here.
    The economy is improving. Economic data is promising. 
Treasury numbers are moving in the right direction. The tax 
reform law is being implemented. Overall, the economy, as I 
say, is moving in the right direction. However, we continue to 
see that lending and borrowing remain flat for small 
businesses. This becomes more acute as you get down to the 
smaller firms across the nation. We continue to hear that 
financing projects for growth and expansion, which leads to job 
creation, are challenging.
    One of the top priorities for this Committee is to study 
how we can create an environment for small businesses to 
flourish. I cannot say it enough, when small businesses grow, 
so does our economy. To address the gap that small businesses 
face when financing their projects, the SBA offers the 7(a) 
loan program for small businesses that have a plan in place for 
growth, but lack the qualifications for conventional lending 
such as collateral.
    Recent growth in the program has led to a closer look at 
the SBA's oversight tools. As a result of multiple hearings, 
meetings, and briefings, I, along with the Ranking Member and 
our Senate counterparts, introduced H.R. 4743, the Small 
Business 7(a) Lending Oversight Reform Act of 2018. This 
bicameral and bipartisan legislation aims to ensure the 
integrity of the program while bringing stability to small 
businesses that truly require the services of the SBA. 
Specifically, H.R. 4743 strengthens the Office of Credit Risk 
Management, which oversees lenders at the SBA. It does so by 
reinforcing the office's oversight authority, increasing 
enforcement options, enhancing the lender review process, and 
cementing the SBA's use of the Lender Oversight Committee, 
which plays a major role in significant enforcement actions.
    Beyond strengthening the oversight activities of the SBA, 
this bill will also require a more transparent budget process 
to ensure the SBA is allocating oversight dollars properly. 
This Committee often discusses the importance of Credit 
Elsewhere Tests. This is not an understatement; this test acts 
as a gateway into a Federal Government guarantee.
    Simply put, the 7(a) loan program cannot be used by small 
businesses that can receive traditional bank lending. This 
legislation bolsters the test by updating and clarifying the 
factors often used in that test.
    It is important to note because of the fees associated with 
the program that are paid by participants, the 7(a) loan 
program runs on a zero cost to American taxpayers. To ensure 
that this remains the case and to ensure the program remains an 
option for creditworthy small businesses that justly need it, 
strong oversight is mandatory.
    I believe we are heading in the right direction. We have 
already begun to hear from 7(a) loan participants, and I want 
to share a quote from a letter of support. I would ask 
unanimous consent to enter the letter into the record, and this 
is the letter here from Huntington. And without objection, so 
ordered.
    It is, as I mentioned, from Huntington Bank, a storied 
institution from my home State of Ohio. And to quote a couple 
of small parts, ``This legislation is focused on the long-term 
success and sustainability of the SBA programs that serve to 
grow and protect small businesses.'' On the provisions to 
improve the Credit Elsewhere Test, Huntington says that the 
changes will ``protect the program's integrity.''
    Do we have more work to do on this topic? Absolutely. I see 
this as a starting point, not the end point. For the nation's 
mom-and-pop shops, to those operating a franchise, to those 
creating the next great American product or service, we are 
just beginning. This hearing will provide Committee members the 
opportunity to hear from participants in the 7(a) loan program 
about how the proposed changes will ensure real growth while 
providing certainty to small businesses.
    We appreciate the witnesses for being here this morning. We 
look forward to your testimony.
    And I would now like to yield to the Ranking Member for her 
opening remarks.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    All of us are acutely aware of the vital role access to 
capital has in the success of our nation's 29 million small 
businesses. Without it they cannot stock their shelves, pay 
their employees, or upgrade equipment. Capital is the key to 
unlocking opportunities to grow and create new jobs in the 
local economy. A vital pathway to accessing that capital is 
through the 7(a) loan program, SBA's flagship lending product.
    At the beginning of this Congress, our committee held a 
series of hearings to take the temperature of the 7(a) program 
by looking at how it is being used and administered. The good 
news is it is as successful as ever. In 2017, the program made 
62,400 loans totaling $25.4 billion, an all-time high. At the 
same time, defaults are at historic lows.
    Conventional lending to small businesses has yet to return 
to its prerecession peak, however, making the 7(a) program all 
the more important to driving economic growth.
    The 7(a) program is not without shortcomings. Both lenders 
and the agency have said oversight could be improved, the 
oversight toolbox made more robust, and transparency increased 
with legislative action. This committee heard you and set out 
to address your concerns.
    The Small Business 7(a) Lender Oversight Reform Act of 2018 
addresses a number of issues and makes long-overdue reforms to 
the program. The act glorifies the Office of Credit Risk 
Management and Lender Oversight Committee and outlines the key 
employees and duties of each. It also requires the office to 
internally submit a budget to ensure there is justification of 
the fees, salaries, and expenses used to carry out oversight 
functions. These reforms ensure the oversight process will have 
transparency and uniformity for both lenders and the SBA.
    We also heard that a Credit Elsewhere Test, a bedrock of 
the program, was not clear enough and lacked an SBA 
verification component. This bill better articulates the 
characteristic of the Credit Elsewhere Test and bolsters 
verification of how it is fulfilled.
    Finally, we all remember 2015 when the program ran out of 
authority to lend before the end of the year. This created an 
artificial run on the lenders to get loans approved, unfairly 
harmed small businesses that needed credit, and ultimately 
required congressional intervention. Today's bill incorporates 
provisions from legislation I introduced earlier this year 
empowering the SBA administrator to request additional lending 
capacity from Congress to meet unexpected demand late in a 
fiscal year. With improvements offered by the Chairman, this 
streamlined process strikes a commonsense balance between 
congressional oversight and ensuring SBA can keep making loans 
to deserving businesses that cannot get credit elsewhere.
    I want to thank Chairman Chabot and his staff for working 
in such a collaborative manner on this legislation. I also want 
to thank Senator Risch and Shaheen and their staff for making 
this process both bipartisan and bicameral. Through debate and 
compromise, we arrived with a legislative product we can all be 
proud of. Administrator McMahon and her team and the trade 
organizations testifying today were also vital in crafting this 
bill, and we greatly appreciate your input.
    With that, let me thank our witnesses for being here today 
to continue this discussion. I look forward to hearing today's 
testimony.
    I yield back. Thank you, Mr. Chairman.
    Chairman CHABOT. Thank you very much. The gentlelady yields 
back.
    And I would like to thank the Ranking Member for her 
leadership and her cooperation and the bipartisanship that she 
and her staff showed with ours in crafting this as well. We 
really do try to work in a bipartisan manner on this Committee, 
and we certainly showed that in this case.
    If Committee members have opening statements prepared, I 
ask that they be submitted for the record.
    And I would like to take just a moment to explain our 
timing system and the lights and that short of thing. The rules 
are pretty simple. You get 5 minutes to testify, and we will 
have 5 minutes each to ask questions. There is a lighting 
system to assist you. The green light will be on for 4 minutes 
and the yellow light will be on for a minute to let you know it 
is about time to wrap up. And then the red light will come on 
and we would ask you to stay within those parameters if at all 
possible.
    And I would now like to introduce our distinguished panel 
here this morning.
    Our first witness is Ms. Cindy Blankenship. Welcome back to 
the Committee. Ms. Blankenship has been a frequent visitor and 
guest here and speaker and has done really a fine job over the 
years. She is the Vice Chairman and Chief Operating Officer of 
the Bank of the West in Grapevine, Texas, which opened in 1986, 
under her leadership. Ms. Blankenship has spent years as a 
leader in community banking in Texas and throughout the 
country. She has also been a past chair of the Independent 
Community Bankers of America and a member of the FDIC's 
Advisory Committee on Community Banking. Ms. Blankenship is 
testifying today on behalf of the Independent Community Bankers 
of America, and we welcome you back.
    Our next witness will be Ms. Patricia Husic. Ms. Husic is 
the President and Chief Executive Officer of the Centric Bank 
in Harrisburg, Pennsylvania, which she established. Prior to 
her time founding Centric, Ms. Husic was an executive at a 
number of Pennsylvania financial institutions and is a past 
chair of the Pennsylvania Bankers Association. With nearly 
three decades of banking experience, Ms. Husic has been 
recognized on multiple occasions as one of the 25 Women to 
Watch in Banking. Ms. Husic is testifying today on behalf of 
the American Bankers Association, and again, we welcome you 
today.
    And I would now like to yield to the Ranking Member for the 
introduction of our other two witnesses this morning.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    With more than 20 years of experience and increasing 
responsibility in marketing, strategic planning, management, 
and lending, Sonya McDonald has spent the majority of her 
career in the credit union industry. As the EVP/Chief Lending 
Officer at RBFCU, Sonya is currently responsible for a $6 
billion portfolio, including $22 million in SBA loans. Ms. 
McDonald holds a bachelor's degree in journalism from the 
University of Texas at Austin. Welcome, and thank you for being 
here.
    Tony Wilkinson has served as President and Chief Executive 
Officer of the National Association of Government Guaranteed 
Lenders for more than 25 years. He is responsible for 
overseeing the association's government relations strategy and 
often offers expert testimony before Congress. He works closely 
with SBA and the Small Business Committee to ensure the 
continued stability and availability of the SBA 7(a) business 
loan program to the nation's small businesses. Welcome, and 
thank you for being here.
    Chairman CHABOT. Thank you very much.
    And we will now hear from Ms. Blankenship. You are 
recognized for 5 minutes. Thank you.

  STATEMENTS OF CINDY BLANKENSHIP, VICE CHAIRMAN, BANK OF THE 
   WEST; PATRICIA HUSIC, PRESIDENT & CEO, CENTRIC FINANCIAL 
  CORPORATION ; SONYA MCDONALD, EXECUTIVE VICE PRESIDENT AND 
 CHIEF LENDING OFFICER, RANDOLPH-BROOKS FEDERAL CREDIT UNION; 
   TONY WILKINSON, PRESIDENT & CEO, NATIONAL ASSOCIATION OF 
                 GOVERNMENT GUARANTEED LENDERS

                 STATEMENT OF CINDY BLANKENSHIP

    Ms. BLANKENSHIP. Chairman Chabot, Ranking Member Velazquez, 
and members of the Subcommittee, I am Cynthia Blankenship, Vice 
Chairman and Corporate President of the Bank of the West in 
Grapevine, Texas. It is a $450 million community bank with 105 
employees in the Dallas-Fort Worth suburban area.
    I am also a former Chairman of the Independent Community 
Bankers of America, and I am pleased to testify today on behalf 
of more than 5,700 community banks represented by ICBA.
    A robust 7(a) program with broad community bank 
participation will help small businesses thrive and create 
jobs. We are grateful for this Committee's strong support of 
the 7(a) program.
    Bank of the West is a 30-year partner with the Small 
Business Administration and a leading SBA lender in the Dallas-
Fort Worth district. We currently hold in service nearly $100 
million in high-quality SBA loans with a minimal loss ratio. 
Historically, Bank of the West 7(a) loans have created 
thousands of jobs in the communities we serve and help sustain 
and strengthen our local economy.
    Bank of the West uses the 7(a) program to supplement our 
lending and credit services by reaching a broader range of 
borrowers who would not qualify for conventional loans.
    To preserve the long-term viability of the 7(a) program, 
ICBA supports targeted reforms such as those contained in the 
Small Business 7(a) Lending Oversight Reform Act, H.R. 4743, to 
ensure its integrity and continued safety and soundness. H.R. 
4743 would codify the SBA Office of Credit Risk Management, 
which supervises and oversees all SBA lenders, and the Lender 
Oversight Committee, which reviews the office's enforcement 
recommendations. The bill would provide guidelines for lender 
reviews, codify lender appeal rights, and create greater 
transparency in the office's budget. These provisions 
strengthen the integrity of all SBA lending programs and all 
responsible lenders should support them.
    The 7(a) program is only available to small businesses who 
would not otherwise qualify for a conventional loan. To 
safeguard the program from abuse, H.R. 4743 would codify the 
SBA's Credit Elsewhere Test, which requires lenders to fully 
substantiate and document the reasons a given applicant cannot 
be served with conventional credit. Stable funding of the 7(a) 
program is critical to the thousands of borrowers who rely on 
it.
    As is well known to this Committee, program funding came to 
an abrupt halt in the summer of 2015 when it reached its 
authorization cap well before the end of the fiscal year. 
Congress was forced to pass an emergency increase to the 
authorization cap to restart the program.
    ICBA greatly appreciates the support and responsiveness of 
this Committee in passing the emergency increase. Thankfully, 
the hiatus was short-lived. A longer program shutdown would 
have cut off the thousands of small businesses that rely on 
this program for payrolls, investment, and expansion.
    While the 7(a) program is fully funded by user fees and no 
taxpayer dollars are appropriated, a program authorization 
level must be approved by Congress each year, and once that 
level is reached, no more loans can be approved. H.R. 4743 
would give the administrator authority to raise the cap by up 
to 15 percent one time each fiscal year with the approval of 
the House and Senate authorizing and appropriating committees.
    I have focused my remarks today on the 7(a) program. 
However, taking a broader perspective, I urge this Committee to 
support regulatory relief that would strengthen community banks 
and enable more small business lending in SBA programs and in 
conventional markets. We are grateful to the Financial Services 
Committee for its passage of numerous regulatory relief bills 
in this Congress and past Congresses. These bills were the 
groundwork for the Senate Banking Committee's passage of S. 
2155 in December on a strong bipartisan vote. S. 2155 contains 
robust regulatory relief for community banks which will create 
more small business credit, economic growth, and jobs. We urge 
the House to quickly pass S. 2155 when it is sent over from the 
Senate in the coming weeks. We must not miss this long-awaited 
opportunity for community bank relief.
    Thank you again for convening this hearing. I am happy to 
answer any questions you may have.
    Chairman CHABOT. Thank you very much.
    Ms. Husic, you are recognized for 5 minutes.

                  STATEMENT OF PATRICIA HUSIC

    Ms. HUSIC. Thank you.
    Chairman Chabot, Ranking Member Velazquez, and members of 
the Committee, I am Patricia Husic, President and CEO of 
Centric Bank, a community bank headquartered in Harrisburg, PA. 
I appreciate the opportunity to present the views of ABA on 
legislation that would improve the availability of SBA 7(a) 
loans and oversight of the program. ABA applauds your 
leadership, Mr. Chairman and Ranking Member Velazquez, in 
introducing H.R. 4743 and working with your Senate 
counterparts.
    The SBA 7(a) loan program is very important to small 
businesses as it helps fill a critical gap, particularly for 
early-stage businesses that need access to longer-term loans. 
This long overdue bill will strengthen the SBA's Oversight 
Office and provide flexibility to the administrator to increase 
the program's maximum lending authority in the event it would 
be reached.
    At Centric Bank, the 7(a) program has helped hundreds of 
entrepreneurs during the past 10 years start their own 
business, purchase an existing one, or expand a current 
business. At Centric Bank, we view SBA lending as a way to get 
a customer to yes in a safe and sound manner. Without this 
program, many entrepreneurs would never realize their dream.
    For example, over 5 years ago, a young customer had a dream 
of owning his own restaurant in Harrisburg. When he finally 
found a business to purchase, he was unable to obtain a 
traditional bank loan. Through the 7(a) program, we were able 
to help this owner acquire the building and business with a 10 
percent down payment and appropriate repayment terms. His 
business is profitable, and just 9 months ago we financed a 
second restaurant for him using the 7(a) program. The program 
enabled this entrepreneur to realize his dreams and now he is 
the owner of two profitable and successful restaurants, 
employing more than 60 people.
    We also assisted a U.S. Army veteran who wanted to open a 
gun range with education and training for the public. They also 
had the foresight to open their facility to police 
municipalities to provide access for the officers while they 
were off duty. The customer was unable to obtain financing 
through a traditional bank loan. With a longer-term loan 
provided through the 7(a) program, the business owners obtained 
the financing they needed and they were able to open their 
facility. They have hired 20 people, the majority of whom are 
veterans.
    Another customer of Centric Bank was looking to expand his 
existing minority-owned construction company from Philadelphia 
into the New Jersey markets. Centric Bank closed a $675,000 
7(a) loan to buy the commercial building, provide working 
capital for expansion, and hire new employees. Without the SBA 
guarantee, we would not have been able to provide the funding 
due to an overall collateral shortfall. This loan has provided 
our customer with a foundation for sustained growth.
    It is essential that small businesses that qualify for the 
7(a) loan program are able to utilize the program to obtain 
access to the necessary capital to build and grow their 
businesses. In past years, this has been a challenge as the 
program has hit its funding limits. H.R. 4743 would grant the 
authority to the administrator to increase the amount for 
general business loans up to 115 percent of the fiscal year's 
limit. This important measure helps ensure that small 
businesses will not be affected by temporary shutdowns in the 
program leaving them unable to meet payroll, purchase 
inventory, or secure equipment and supplies. Importantly, this 
bill also takes steps to improve the oversight of the program 
to prevent fraud and increase efficiency. Clear 
responsibilities for the Office of Credit Risk Management, 
including risk analysis, providing timely findings to lenders 
and establishing a Lender Oversight Committee should ensure the 
appropriate level of accountability while maintaining checks 
and balances. H.R. 4743 also helps to ensure capital goes to 
small businesses that face financing obstacles by clarifying 
the factors considered in the Credit Elsewhere Test.
    The 7(a) program is an example of how bank lending 
facilitates economic growth. This program should be vigorously 
supported in the future, and H.R. 4743 is an important measure 
to ensure the continued success of this program. In my written 
statement, I outline several suggestions that would improve the 
servicing aspects of the 7(a) program and would hope the 
committees will consider these in your deliberations.
    Thank you. I would be happy to answer any questions.
    Chairman CHABOT. Thank you very much.
    Ms. McDonald, you are recognized for 5 minutes.

                  STATEMENT OF SONYA MCDONALD

    Ms. MCDONALD. Chairman Chabot, Ranking Member Velazquez, 
and members of the Committee, thank you for the invitation to 
appear before you this morning. My name is Sonya McDonald, and 
I am testifying today on behalf of NAFCU.
    I am the Executive Vice President and Chief Lending Officer 
at Randolph-Brooks Federal Credit Union. In this role, I am 
responsible for a $6.6 billion portfolio that encompasses 
consumer, mortgage, and commercial lending. I appreciate the 
opportunity to share with you our thoughts on strengthening the 
Small Business Administration's 7(a) loan program.
    RBFCU became an SBA-preferred and express lender in 
September 2005. We are delegated with SBA authority and are 
able to offer all of their products. In both 2016 and 2017, we 
were the number one SBA lending credit union in our 55 county 
districts.
    SBA products allow us to leverage our lending dollars, 
mitigate the risk associated with the loans, and extend more 
credit to our community's small businesses. Our current 
portfolio has 210 active SBA loans with a balance of 
approximately 23 million.
    There are many stories of small business owners looking for 
that loan that will allow them to either start or grow their 
business. While other institutions may have scaled back their 
small-dollar business lending, credit unions have been willing 
to fill that void. At RBFCU, we are pleased that we have been 
able to step up to help meet the demand. SBA's 7(a) loans make 
it easier for credit unions because the government-guaranteed 
portion of these loans does not count towards the arbitrary 
credit union member business lending cap.
    In San Antonio, we have a great bagel shop, the Bagel 
Factory, owned by an Air Force veteran and his wife. They went 
to 20 different places and were denied before coming to 
Randolph-Brooks for an SBA loan. That business is now thriving 
as it enters its eighth year. This is an example of the kind of 
business that SBA 7(a) loans are here to help.
    Last year, NAFCU renewed a memorandum of understanding with 
SBA to help address the challenge of getting more credit unions 
involved with the SBA. The MOU formalized a joint partnership 
that aims to increase the availability of small-dollar loans by 
providing more outlets for entrepreneurs to access SBA products 
in their neighborhoods and it makes the small-dollar loans more 
accessible to underserved communities, including women and 
minorities.
    We appreciate the work SBA has done to improve their 
processes. We also support your legislative efforts in H.R. 
4743, the Small Business 7(a) Lending Oversight Reform Act of 
2018. This legislation will help credit unions by bringing more 
clarity to SBA's 7(a) loan program by outlining more specifics 
in statute. We are particularly pleased to see the Credit 
Elsewhere Test better defined in the bill as compared to what 
is included in the standard operating procedures. This will 
help clear up ambiguity for lenders.
    One of the most important parts of the bill is the 
administrator's authority to increase the budget amount to 115 
percent of the limit. This would be beneficial to both 
borrowers and lenders versus the hard cap that currently exists 
and helps ensure that lenders and small businesses will not 
face a situation where the ability to use the 7(a) program 
comes into doubt due to the popularity of the program.
    One area where we think the legislation could be improved 
would be to have better definitions for penalties. Adding 
clarity that requires the director to distinguish between minor 
compliance errors and willful or negligent violations would be 
helpful.
    Overall, we believe this is a solid legislative package and 
would urge the Committee to support and advance this 
legislation in a timely fashion.
    In conclusion, small businesses are the driving force of 
our economy and the key to its success. The ability for them to 
have access to capital is vital for job creation. While SBA's 
7(a) program provides opportunities to establish struggling 
businesses, there continue to be ways the program can improve. 
The SBA has taken some steps in the last year to improve the 
program. Enacting the Small Business 7(a) Lending Oversight 
Reform Act is another step that will help. We urge you to 
support this legislation.
    We thank you for your time and the opportunity to testify 
before you today on this important issue. I would welcome any 
questions you may have.
    Chairman CHABOT. Thank you very much.
    Mr. Wilkinson, you are recognized for 5 minutes.

                  STATEMENT OF TONY WILKINSON

    Mr. WILKINSON. Thank you, Mr. Chairman, Ranking Member 
Velazquez, and members of the Committee. My name is Tony 
Wilkinson, and I am here on behalf of the National Association 
of Government Guaranteed Lenders, NAGGL. NAGGL is a national 
trade association representing banks, credit unions, 
nondepository lenders, and other entities that participate in 
the Small Business Administration's 7(a) Loan Guaranty Program. 
NAGGL's members are responsible for approximately 80 percent of 
all the SBA 7(a) loans made annually.
    This Committee and its colleagues on the Senate Committee 
on Small Business and Entrepreneurship have been looking into 
the performance of the SBA 7(a) loan program and SBA's role in 
oversight of the program for about the last 3 years. There has 
been great care taken by this Committee to approach this issue 
with diligence, and as the CEO of the SBA's 7(a) industry's 
trade association for the last 30 years, I can tell you 
honestly that your careful approach to this matter is a rarity 
in the history of this program and it is incredibly 
appreciated. Your staff, particularly Rob Yavor for the 
majority and Justin Pelletier for the minority--and since they 
are in the audience I will give a shout out to Renee Bender on 
the majority and Kevin Wheeler on the minority over in the 
Senate--they have worked diligently to understand the very 
technical issues of the 7(a) program. We also very much 
appreciate the Committee's announced intention to continue to 
work with industry and the agency to perfect H.R. 4743 going 
into the markup process. The lending industry that NAGGL 
represents is grateful for this Committee and its staff's 
longstanding commitment and dedication to engaging the many 
stakeholders throughout the process, and we look forward to 
working with you and with SBA to ensure that the final 
legislation provides appropriate direction for SBA's lender 
oversight efforts.
    I am pleased to testify today to discuss NAGGL's support 
for H.R. 4743, the Small Business 7(a) Oversight Reform Act of 
2018, which will strengthen SBA's Office of Credit Risk 
Management and how it performs its role to oversee the 7(a) 
program.
    One of the most important provisions to the lending 
community included in H.R. 4743 includes granting flexibility 
authority to the SBA administrator to increase the 7(a) 
program's authorization cap by 15 percent if the pace of 
lending is set to exceed that fiscal year's given cap. NAGGL 
first presented this flexibility language to the Office of 
Management and Budget and to Congress in the wake of the fiscal 
year 2015 7(a) lending shutdown, drawing on the same language 
and precedent set by the House and Senate Appropriations 
Committees in their treatment of various USDA loan programs. 
Since then, NAGGL has enjoyed the partnership of Senator Risch, 
Coons, and Shaheen, to name a few last Congress, who introduced 
a bill in the Senate to establish cap flexibility, and this 
Congress, Ranking Member Velazquez championed a bill in the 
House to move this proposal forward. And as you know, OMB 
included this language in the last three presidential budget 
proposals, so SBA has been a champion for this proposal as 
well.
    In both fiscal year 2014 and in 2015, the SBA 7(a) program 
saw demand from small business borrowers reach the program's 
authorization cap before the end of the fiscal year, and in 
fiscal year 2015, the program shut down for several days. Some 
of you on this Committee helped see unusual measures of 
emergency supplemental language pass Congress and receive the 
President's signature to ensure the 7(a) program remained 
available to the country's small businesses, and industry owes 
you a great deal of gratitude. But those were rare instances of 
congressional intervention and, unfortunately, these threats of 
shutdown destabilized the program and altered lender behavior. 
The issue largely stems from the great difficulty in 
anticipating the exact number of borrowers who will be applying 
for SBA 7(a) loans 18 months in advance as we go through the 
budget process.
    While this flexibility language should never supplant the 
role of Congress in setting authorization caps and still 
requires approval from this Committee and its colleagues in the 
Senate and in the Appropriations Committee, it serves as a 
commonsense safeguard against last-minute panic. Thank you to 
this Committee for embracing and now championing this concept.
    H.R. 4743 also updates the Credit Elsewhere provision 
currently in statute, a clarification lenders have long asked 
for and which is critically important to the program. The 
cornerstone principle of the 7(a) program is that it 
complements but does not compete with conventional small 
business lending. The noncompetitive status of the program is 
assured by the fact that before any 7(a)-loan guaranty can be 
approved, the participating lender must certify that the loan 
could not be made without the SBA guaranty. NAGGL believes the 
proposed legislation will strengthen compliance with the Credit 
Elsewhere requirement by clarifying the types of situations 
which cause the SBA guaranty to be required and provide further 
assistance that 7(a) loans continue to fill the existing small 
business credit gap.
    Finally, I would like to applaud the Chairman and Ranking 
Member for the provision of the bill which improves the 
oversight review process for lenders. NAGGL has long called for 
full-time employees of SBA to lead each team of reviewers that 
conducts the oversight reviews of the program's participating 
lenders. When there is a full-time employee present and 
supervising each review, it ensures that there is a deep 
foundation and understanding of the incredibly complicated 
policies that are specific to SBA.
    There is a whole host of other provisions in this bill that 
I would be happy to discuss. And with that, I will conclude my 
remarks.
    Chairman CHABOT. Thank you very much.
    And I will recognize myself for 5 minutes to begin the 
questions. And I will open with a general question. I am just 
going to kind of go down the line here.
    On the small business lending environment in our country, 
we hear that small businesses and their optimism is on the 
rise. Is this increase in optimism being matched by a demand 
for small business loans that you are seeing at your particular 
institution? And if you could just give us the general climate. 
And I have got some other questions, so if you could maybe take 
15 to 30 seconds or so to answer. And I will begin with you, 
Ms. Blankenship.
    Ms. BLANKENSHIP. Well, I am in the Dallas-Fort Worth 
metroplex, and the North Texas economy is thriving. So it has 
been very encouraging to see small businesses start to be 
encouraged by the economy and believe that they can now take 
the chance to gamble and leverage. We saw many businesses just 
sit on liquidity for years after the crisis, so we are seeing 
an uptick.
    Chairman CHABOT. Good. Thank you very much.
    Ms. Husic?
    Ms. HUSIC. We are seeing a lot of increase of SBA lending 
and small business lending. As a point of reference, Centric 
Bank, we are headquartered in the Harrisburg, PA, area. We also 
loan in Lancaster County where we have an office as well as an 
office, and we loan through the suburban Philadelphia market, 
as well as in the western part of New Jersey. For some 
statistics or a number to support that, for example, last year 
our organization had about a 30 percent growth in our 
commercial lending, of which we are 85 percent focused on small 
business. Last year, we originated over $200 million in 
commercial lending, of which $38 million was SBA 7(a) loans to 
about 46 clients. Looking at 2017, we originated about $210 
million in commercial loans. That SBA 7(a) number was in excess 
of $41 million, but to more borrowers, to approximately 77 
borrowers.
    Chairman CHABOT. Thank you very much.
    Ms. McDonald?
    Ms. MCDONALD. Just like Ms. Blankenship, I am in Texas, and 
Texas has had a very strong economy. What we are seeing is more 
confidence----
    Chairman CHABOT. Could you pull that mic a little bit 
closer there? Thank you.
    Ms. MCDONALD. What we are seeing is more confidence in the 
economy. We are seeing more applications from our small 
business members.
    Chairman CHABOT. Great. Thank you.
    Mr. Wilkinson?
    Mr. WILKINSON. While I am not a direct lender, our members 
are reporting robust growth. Our loan volume through the first 
couple of weeks of January, year-to-date this fiscal year we 
are up 18 percent nationwide in 7(a) lending. So, good economy.
    Chairman CHABOT. Good. Glad to hear that on all counts 
here.
    Mr. Wilkinson, I will go to the next question with you. 
This Committee has emphasized the importance of the Credit 
Elsewhere Test in the past. Can you provide a little detail on 
how this test works in practice? And do the changes in the bill 
that we are considering here today, will they further clarify 
and bolster this test to ensure that the correct small 
businesses are entering the program?
    Mr. WILKINSON. I would be happy to. As has been mentioned 
here, the cornerstone tenet of the 7(a) program is that it does 
not compete with the commercial lending marketplace; that it 
complements it. The issue becomes how to provide better 
guidance to lenders to assure that the Credit Elsewhere Test 
continues to be appropriately met for each and every loan. And 
part of the issue has been for our lenders is that the current 
definition has not been updated for decades.
    And I thought I would read to you what it currently says. 
It says, ``For purposes of this act, the term 'credit 
elsewhere' means the availability of credit from non-Federal 
sources on reasonable terms and conditions, taking into 
consideration the prevailing rates and terms in the community 
in or near where the concern transacts business.''
    Well, in today's lending environment, geography really does 
not matter, and so there is a lot of language there that 
becomes confusing to our members in how to comply with that 
statute. So we believe the language that is in H.R. 4743 clears 
that up, defines what are acceptable items that need to be 
reviewed and would be required for the lender to document in 
their file.
    Chairman CHABOT. Thank you very much.
    Ms. Husic, I have only got about a minute left. So, as you 
know, this bill would require SBA to perform a portfolio risk 
analysis. And I want to make sure you do not think we are going 
too far there. I see Congress receiving this information is 
very important. However, from your perspective, we are not 
asking too much there, are we?
    Ms. HUSIC. Absolutely not. When we take a look at--I think, 
you know, I look at our own organization. When we take a look 
and evaluate the loans we booked to our portfolio with each of 
those certain industry concentrations, we have a certain 
percentage of our capital that is allocated to that. You know, 
from there, on an annual basis, and even more so on a quarterly 
basis, we do evaluate that, and I think that is a good business 
practice. Furthermore, it is a good risk management practice to 
do that.
    Chairman CHABOT. Thank you very much. And my time is 
expired.
    The Ranking Member is recognized for 5 minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Wilkinson, all of you mentioned that this bill includes 
flexibility language for the administrator to request an 
increase in the authorization cap of the program to meet 
unexpected demand. There seems to be some confusion about how 
this will work in practice. So my question to you is, can you 
elaborate on this authority, how can it be used?
    Mr. WILKINSON. I would be happy to. First, this authority 
is actually mirrored by the same authority appropriators have 
given to the Department of Agriculture's USDA loan guaranty 
programs in recognition that demand on any given day, week, or 
month can often exceed expectations and that lending is 
cyclical. The intention, as set out in this language, is that 
the authority can be used only once per year. So presumably, 
the agency would want to use its authority at the end or 
towards the end of a fiscal year to prevent programmatic 
shutdown if the authorization cap was going to be insufficient 
as that was the case in 2015.
    Ms. VELAZQUEZ. So not at the end of a short-term CR, 
correct?
    Mr. WILKINSON. Correct. So at a CR, it really becomes a 
function of do we have what is called anomaly language in the 
CR that allows SBA to spend at whatever the pace of demand 
might be.
    Ms. VELAZQUEZ. And can you please explain how the anomaly 
process can work?
    Mr. WILKINSON. I would be happy to. So what happens under a 
CR is the Office of Management and Budget takes the number of 
days that are provided for in the CR and divides that into the 
authorization cap for the year. So we get X amount of money to 
lend during that period of time. With an anomaly, that 
calculation is not necessary. We are allowed to spend up to the 
authorization cap at whatever pace. And just so folks 
understand, we hit that apportionment cap at the last CR. We 
actually had a program shut down for a few hours. A lot of 
folks do not know that we did, but we had a program shut down 
for a number of hours as the last CR ended and the current one 
started. There was a gap there for about 6 or 7 hours.
    Ms. VELAZQUEZ. Thank you.
    Ms. McDonald, SBA's capital access mission is to aid and 
assist America's small businesses, including underserved and 
vulnerable small businesses to obtain the capital that they 
need. So does SBA encourage lenders to make loans to 
underserved markets, such as to firms majority-owned by those 
who are socially and economically disadvantaged and to new 
businesses?
    Ms. MCDONALD. Well, at Randolph-Brooks Federal Credit 
Union, we have about 240 SBA loans to minorities, approximately 
230 to women, and 167 to veterans. So this is a huge part of 
our SBA lending. That is what credit unions are here for. We 
are here to provide those small-dollar business loans to folks 
who could not get it. The average SBA loan at Randolph-Brooks 
is less than $90,000, and I would say more than half of our SBA 
loans are for less than $75,000.
    Ms. VELAZQUEZ. In your meetings with SBA officials, is 
there any discussion as to what is it that you are doing to 
increase small business lending for underserved communities or 
underserved small businesses?
    Ms. MCDONALD. Well, at Randolph-Brooks we serve a lot of 
underserved areas. We call them community charter areas and we 
look for opportunities to help folks. I am thinking right now 
of a Mexican restaurant on the south side of San Antonio. So we 
have lots of opportunities to do that and the SBA has gotten 
much better at working with us to make things easier.
    Ms. VELAZQUEZ. Thank you.
    Ms. Husic, you testified that increasing the time that a 
seller can remain on as an employee with the business will be 
beneficial. This is something I am also exploring as a way for 
the 7(a) program to help ESOP and Co-Op ownership transitions. 
Can you please elaborate on why extending this period is 
necessary and whether there are any additional safeguards that 
could be implemented to address concerns about a seller double-
dipping after the sale of the business?
    Ms. HUSIC. Absolutely. We have had certain situations where 
perhaps it is a first-time business owner, they are acquiring 
the business, and which would be helpful and we are not looking 
for a long-term period of time, but maybe in certain situations 
a 2-year period of time might be valuable. When any type of 
loan we are making, conventional or SBA, we are always looking 
to set the borrower up for success. So maybe navigating some 
challenging times in a business and they have not been through 
that before, maybe some also intricacies in with particular 
clients could be beneficial, I think in the end that new 
business owner has to have the ultimate ability to terminate 
that employment and to give control so there is no double-
dipping going on there.
    Chairman CHABOT. The gentlelady's time is expired.
    The gentleman from Kansas, Mr. Marshall, Dr. Marshall, is 
recognized for 5 minutes.
    Mr. MARSHALL. Thank you, Chairman.
    My first question is going to be for Ms. Husic, and then I 
want to ask you other three the exact same question, so I am 
going to give you a chance to prepare. The second question is 
going to be, how are the Tax Cuts and Jobs Act going over in 
your community? What has it done to unleash this economy? If 
you can give me some examples.
    My first question for Ms. Husic, I have been part of a bank 
board for 15 years, and over and over I saw the great things 
that the small business loans did. Specifically, what has this 
bill done to improve that process? How is it going to help your 
customers?
    Ms. HUSIC. Well, first and foremost, the SBA, and 
specifically the 7(a) program is a great program, and it is an 
opportunity if you cannot do the loan conventionally, how do we 
get our client to a yes? And that is what we look to do as 
small businesses, 85 percent of our lending. But when you take 
a look at some of the processes, we have had some clients that 
when a number of years ago the SBA ran out of funds and we were 
getting ready to settle and we were waiting for the SBA 
approval, we are a nonpreferred lender so that we submit our 
applications to the SBA and wait for the approval to come back. 
And we were sitting there with that particular client. We could 
not get them over the finish line with that unnecessary or that 
wait, that you could never give them that specific timeline.
    We have also had another client at that same timeframe was 
looking for a loan and it was to be able to support additional 
inventory connected with an additional contract which, again, 
these type of things would help that if that situation were to 
present itself----
    Mr. MARSHALL. Does this bill make it more efficient, do you 
think, the process?
    Ms. HUSIC. I think it will make it more efficient, but 
also, that if the SBA runs out of funds, they would have the 
ability to have that additional 15 percent to be able to extend 
that.
    Mr. MARSHALL. Got it. Okay.
    Ms. Blankenship, how are the Tax Cuts and Jobs Act 
impacting Texas?
    Ms. BLANKENSHIP. Well, I think very positively. I think it 
is a bit early yet, but I think the general----
    Chairman CHABOT. I am not sure if that mic is on.
    Ms. BLANKENSHIP. To answer your question, the tax cut has 
had a positive effect on the Texas economy. On our small 
businesses, I see a lot of encouragement, a lot of future 
planning. They seem to be willing to leverage those additional 
dollars saved by their tax savings, which in turn helps the 
community. So we are very excited to see that.
    Mr. MARSHALL. And you hope the 7(a) is just one more step 
to making those dreams come true, living this American dream?
    Ms. BLANKENSHIP. Exactly.
    Mr. MARSHALL. Ms. McDonald, where are you from? Remind me.
    Ms. MCDONALD. San Antonio.
    Mr. MARSHALL. San Antonio, another Texas gal. We are just 
loaded with Texas here.
    Ms. MCDONALD. Another great Texas town.
    Mr. MARSHALL. How is the Tax Cuts bill working down there?
    Ms. MCDONALD. It is going very well. We had a record year 
in lending last year, particularly towards the end of the year. 
Typically, in November-December, lending slows down. We had 
record months. In fact, I got an email just right after 
Christmas that said we had over 1,800 loan applications in one 
day. And so that is pretty incredible, especially on a skeletal 
staff at Christmastime. But, and from the small business 
perspective, we are seeing an increase in those applications. 
And, in fact, we are hiring an additional business loan officer 
to keep up with the demand.
    Mr. MARSHALL. So maybe this law will work an old dovetail 
right into those 1,500--is that what you said?
    Ms. MCDONALD. Eighteen hundred loan applications.
    Mr. MARSHALL. In a day.
    Ms. MCDONALD. Now, these were for consumer loans.
    Mr. MARSHALL. That is all right. Okay.
    Mr. Wilkinson, how have your customers, your clients been 
impacted by this Tax Cuts bill?
    Mr. WILKINSON. Well, I represent the lender, so I am not 
dealing directly with our small business customers, but as I 
mentioned, our loan volume is up 18 percent year-to-date, so 
something good is happening.
    But I did want to respond to your earlier question, how 
does this bill help small businesses? And it is more from a 
programmatic perspective. We want this program to be a program 
of integrity. It is working great right now. We want it to 
continue to work great. We are ahead of this curve. We want to 
make sure SBA has the tools and resources to keep the lenders 
between the lines, so we are not responding to any kind of 
problem right now, but we are going to make sure that this 
program is here for the long haul for borrowers for many years 
to come.
    Mr. MARSHALL. Okay. Ms. Husic, you have not had a question 
to respond to my Tax Cuts question. I thought we would get back 
to you. I think you have a story to tell as well.
    Ms. HUSIC. For the tax cuts, we are exploring several 
different ways of where, not only how, do we help more small 
businesses. We have not finalized on any specifics of what we 
will do as an organization. At this point, our board is still 
finalizing that, but we see great opportunities within our 
marketplace. There are a lot of small business optimism, and 
more interesting, starting businesses and expanding, buying 
more capital outlays, those type of things.
    Mr. MARSHALL. I think I would just close this, I finished 
up my town halls this week going to every county. Over and over 
the economy is improving. And people ask me why. And see if you 
agree with this. I think number one is we have cut back on 
regulations. And I think number two is that consumer confidence 
is incredible out there. And then lastly is this tax reform. Is 
there any other big picture out there that you think has added 
to the sudden--not necessarily sudden, but the great economy we 
are experiencing?
    Ms. HUSIC. To your point, I believe all those things, and 
those reasons encompass the reason why there is small business 
optimism, as they are the job creators. As we are looking 
forward, as you mentioned, as far as some relief of regulatory 
burden, as community bankers, we are looking for some of that 
relief as well of the additional amount of regulation and 
burdensome that over the past 8 to 10 years community banks 
have really been burdened with.
    Mr. MARSHALL. Sorry, I went over. I apologize, Chairman.
    Chairman CHABOT. That is okay. The gentleman's time is 
expired.
    The gentleman from Pennsylvania, Mr. Evans, who is the 
Ranking Member of the Subcommittee on Economic Growth, Tax, and 
Capital Access, is recognized for 5 minutes.
    Mr. EVANS. Thank you, Mr. Chairman.
    I would like to start out starting from Ms. McDonald and go 
down that particular direction about what ways do you think 
that can improve this particular program? So I will start with 
Ms. McDonald and then to the right.
    Ms. MCDONALD. Well, I think that this bill is a great 
start. It codifies the expectation. We talked about the Credit 
Elsewhere Test. From a credit union perspective, and we have 
talked about this before, but increasing the member business 
cap for credit unions would help. There are a lot of credit 
unions who do not participate in SBA lending because it does 
take a lot to get a program started. You would have to hire 
somebody, and then if you are wildly successful, then you have 
to cut back, which does not do anything for member service.
    Ms. HUSIC. Several other ways that the SBA 7(a) program can 
be enhanced, currently, the law does not allow for any type of 
consolidation or refinancing with a current lender so that if 
that business owner would like to do any of those things they 
cannot do it. So, for example, if they have been with our 
organization for several years, they need to go to another 
financial institution, and I think that is very challenging for 
that business owner because here is someone they have a 
relationship with, they know their business. They are forced to 
go elsewhere in order to do any of those items.
    An opportunity, too, looking at this particular bill here 
is that if there is an opportunity to carve out for the 
portfolio lenders and suggesting of banks with assets under a 
billion. So, for example, with this particular piece, that if 
prior to this, if you were in excess of our legal lending--
legal lending for a bank is 15 percent of our capital is what 
we can lend. With the SBA guaranty, you could back that out. 
That is no longer the case. So for those of us who are 
portfolio lenders and we want to make loans in our communities, 
that can be prohibitive to us.
    Also, too, we talked briefly about having the seller remain 
on for an extended period of time. In situations we have seen 
it was up to a 2-year period of time to help maybe navigate 
through the waters of being a first-time business owner. But a 
new component with this is that a key employee who is not an 
owner can be required to guarantee the loan and the SBA can 
come back and require that. They are going to have all the 
challenges or the downside of guaranteeing a loan without 
having the benefits of an ownership. And I do not know many 
individuals who are an employee, who are not an owner, who 
would be willing to sign to guarantee that. So those are some 
of the items I would recommend.
    Ms. BLANKENSHIP. I would just echo their comments. But I 
would like to expand on the inability to refinance your own 
credit. We take the risk on these small businesses when they 
come in and we use the SBA 7(a) program because that is what it 
was designed for, those small businesses that cannot get 
conventional credit. But our bank, our small community banks 
are taking that risk. And so when the business gets up and 
successful, if you could look at maybe some term, 3 years down 
the road you are successful, that is when our customers get 
cherry-picked out of our portfolio. And I understand the 
complication that the guaranteed portion many banks sell in the 
secondary market, so then there is an issue with that. But if 
it is a portfolio loan, let us take the entire risk back in-
house and then that would be more dollars back into the SBA 
program to leverage into new small business.
    Mr. EVANS. Mr. Wilkinson, could you talk about the Credit 
Elsewhere provision and how it helps the SBA 7(a) program?
    Mr. WILKINSON. Well, again, it is the cornerstone of our 
program and we are optimistic that the new language provided in 
H.R. 4743 will clarify that for lenders so they know exactly 
what is expected and how the file will have to be documented in 
terms of how they determine that the borrower could not get 
credit elsewhere. So the old definition is quite old. It has 
not been updated for many decades and really does not fit the 
marketplace in which we lend today. So we are cautiously 
optimistic that this language will pass and it will make our 
jobs a lot easier.
    Mr. EVANS. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    The gentleman from Utah, Mr. Curtis, is recognized for 5 
minutes.
    Mr. CURTIS. Thank you, Mr. Chairman and Ranking Member, for 
this opportunity for this critical conversation and this very 
important bill. I must admit, as I have listened to the 
testimony today, my heart has raced and my palms have grown 
sweaty because not too many years ago I was an owner of a small 
business and the trauma of going through loans and navigating 
this, signing your home up as collateral, I think we frequently 
underestimate the sacrifice our small businesses make to drive 
our economy and to employ people.
    And as part of that experience, I know--I would like to 
think I know how a lot of these businesses think, and you will 
not be surprised that many of them find institutions difficult 
to navigate. They may be very good at patents. They may be very 
good at manufacturing. They may be very good at sales, but they 
are not necessarily very good at navigating.
    And Ms. McDonald, if I could start with you because of your 
title, and then ask the others as well to answer this question, 
and that is, are we doing enough to market and to help 
businesses that are not walking through your door who need this 
vital program, but do not understand? And if we are not doing 
enough, what should we be doing?
    Ms. MCDONALD. Well, my credit union career actually started 
in marketing, so I love the idea of marketing all the time. And 
we do do a good job of marketing. At Randolph-Brooks, the 
concern that we have is that if we put up a billboard on 281 in 
San Antonio that talks about the business loans that we do, we 
would get inundated and we would not be able to serve those 
members effectively. So we have to be very strategic in how we 
market the program because the worst thing that can happen is 
you get 1,800 phone calls and you are not able to service them.
    But we work with our local SBDCs. We work with the SBA. We 
work with our members. And really, that is where our program 
started was not that we were going out and marketing small 
business loans; it was our members that came to us and said, 
hey, you do a great job with our personal stuff. We want you to 
take care of our business needs, also. And so that is how we 
grew into business lending was because the members were asking 
for it. So word of mouth does a really good job for us.
    Mr. CURTIS. I do not know if any of the others want to 
weigh in on that. Please, yes, Ms. Husic?
    Ms. HUSIC. One of the things we do at Centric Bank is we 
work with SCORE. SCORE is the Service Corps of Retired 
Executives, who are mentoring for small business. And over the 
year we may be doing 6 to 10 events, different seminars they 
may have. We are educating those who have an interest to own 
their small business, to how to navigate the waters. What do 
they need to do to be prepared?
    There are other things we do. We reach out to our local 
economic developments, our chambers throughout the areas and 
the markets that we serve in being able to be a resource if 
there are questions, but also to have individuals, they can 
come forward being prepared if that is something they are 
looking to explore.
    Mr. CURTIS. Thank you.
    I would like to take this opportunity to point out to all 
of us that we have more work to do. The fact that we would 
flood your bank if it was advertised, it points out that there 
are just a lot of businesses out there who need access to this 
who do not understand it and hopefully we can do more for them.
    I think the last question that I would like to ask, and 
maybe I will start with you, Mr. Wilkinson, is if you are 
familiar with the fee enough that is associated with this to 
comment on how prohibitive is that for these small businesses? 
Clearly, we are taking them above market rate by doing this. 
And are you finding that we are eliminating businesses and 
turning them to other less traditional sources because of that 
fee?
    Mr. WILKINSON. Okay, as with everything else in our program 
there is not really a very simple answer, so bear with me. But 
there is a sliding scale of fees charged to the small 
businesses that increases as the loan size increases. And you 
know, given our loan volume, it is easy for me to say no, they 
are not prohibitive because we are still seeing a strong 
increase in demand. On the interest rate side, we are 
legislatively capped at for most loans prime plus 2-3/4. So the 
interest rate today is--I forget what prime is. What are we, 4? 
So we are like 6-3/4 on our interest rate cap. So the pricing 
is really not pricing folks out of the market.
    Mr. CURTIS. Okay. Please?
    Ms. BLANKENSHIP. Well, I agree. And the thing about the 
pricing, while a lot of customers, you know, kind of flinch at 
the pricing, it does give them an alternative to credit card 
financing, which, you know, I think that the SBA does a great 
job in providing capital access rather than going through the 
credit card.
    Mr. CURTIS. Or hard money loans.
    Ms. BLANKENSHIP. Or hard money.
    Mr. CURTIS. Mr. Chairman, I yield my time.
    Chairman CHABOT. Thank you very much. The gentleman's time 
is expired.
    The gentlelady from California, Ms. Chu, is recognized for 
5 minutes.
    Ms. CHU. Thank you.
    Mr. Wilkinson, as you mentioned in your testimony, the 
authorization level for the 7(a) program is typically set 18 
months in advance and it is hard to anticipate the level of 
demand that far out. Before 2014, had the 7(a) program reached 
the cap before the end of the year, and what do you believe has 
changed with lending over the past few years to cause this 
increase?
    Mr. WILKINSON. Yes, we hit the cap a couple of times before 
2014. I believe it was 2003 and 2004, if my memory serves me 
correctly. But today we have more lenders participating in the 
program than we did back then so the program is much more 
robust and more dynamic. It is growing and it is tough to 
really gauge what our growth rate is going to be 18 months in 
advance, and that is why this flexibility language is so 
important. We try to do a good job of surveying our members and 
get their estimate in their budgets, what is their growth 
forecast for the next year. But again, 18 months in advance is 
a long way to try to guess where we are going to end up and 
what things may be happening in the economy along the way that 
might stimulate or cause demand to slow down. So the 
flexibility language in our opinion is critical so we do not 
bump into those caps and cause program shutdowns going forward.
    Ms. CHU. And then there is the issue of oversight. As the 
7(a) portfolio has grown nearly 60 percent over the past 5 
years, many questions were raised about how the Office of 
Credit Risk Management was handling oversight of such a large 
portfolio.
    So Mr. Wilkinson, the Small Business 7(a) Lending Oversight 
Reform Act would require OCRM to prepare a budget justification 
for Congress in order to create more transparency. How will 
this requirement address some of those concerns?
    Mr. WILKINSON. Well, we want to make sure that the Office 
of Credit Risk Management has the tools and resources it needs 
to conduct appropriate oversight. I think that is the critical 
part of this program. As I mentioned before, we want to have a 
program of integrity. That means we keep everybody between the 
lines so that this program is here for the long haul. We as 
lenders would like to know what resources OCRM is getting. Part 
of those resources we are paying for so we would like to know 
what that might be. And then just to know that they do have the 
tools and the resources they need to get the job done. One of 
our issues with OCRM has been they will come out and they will 
do a review of the lender and sometimes it takes several months 
before that review is completed. And hopefully, with the 
additional resources they can provide those reports in a more 
timely fashion, and it is much more beneficial to the lender if 
they are having issues, that they find out about them today 
rather than a year and a half from now.
    Ms. CHU. In fact, that leads to a question I have for Ms. 
Husic. In addition to requiring SBA employees to manage 
reviews, the Small Business 7(a) Reform Act also sets timelines 
for review reports and correspondence to be transmitted back 
and forth between SBA and lenders. Can you tell us why it is 
important for SBA to provide lenders with an audit report 
within 60 business days instead of 18 months as has happened in 
the past?
    Ms. HUSIC. It is very important to receive the feedback. 
So, for example, if an organization is perhaps in some things, 
if there is a common thread, something systemic, and with the 
underwriting or something they are not doing, I think it is 
important to get that feedback, especially if you are a more 
robust lender or any lending at all, an importance to be able 
to receive that feedback to make any modifications and 
corrections, what you are doing at your particular 
organization.
    Ms. CHU. Now, it is my understanding that many of the SBA 
lenders rely on the services of third-party agents to assist in 
the origination, closing, servicing, and liquidation of these 
loans. You mentioned, Ms. Husic, the lack of training is a 
problem in the loan liquidation process. Could you please 
elaborate?
    Ms. HUSIC. Yes. So for us at Centric Bank, we do utilize a 
third-party to assist us with any, if there is liquidation, et 
cetera. During the course of Centric, we have not had that 
particular issue with us. We are at a 0 percent delinquency as 
well as a 0 percent default rate for any type of SBA lending 
that we have done. But we have heard it has been a common 
thread within the industry as well as to ensuring the 
particular order that you go in to liquidate as to ensuring 
that you maintain and preserve the guaranty piece.
    Ms. CHU. Thank you. I yield back.
    Chairman CHABOT. The gentlelady yields back. Thank you.
    The gentleman from Iowa, Mr. Blum, who is the Chairman of 
the Subcommittee on Agriculture, Energy, and Trade is 
recognized for 5 minutes.
    Mr. BLUM. Thank you, Chairman Chabot, and thank you to our 
panelists for being here today. I appreciate it very much.
    I would like to focus the next couple of minutes if we 
could on the default ratios of the SBA's 7(a) loan program 
versus your commercial loan portfolio as a whole. Can you 
compare and contrast those, the three of you that work at 
financial institutions, please? Ms. Blankenship?
    Ms. BLANKENSHIP. I would say our SBA default ratios are 
very low. It is probably 1 percent or less than our total 
default ratios.
    Mr. BLUM. What would your total commercial loan portfolio 
default ratio be on average?
    Ms. BLANKENSHIP. Historically, well, our past dues are 
about 2 percent, so our charge-offs are maybe .5. So we do not 
have a lot of charge-off and default ratios. And particularly 
on our SBA, we have had great historical--we do not have zero 
such as Ms. Husic, but traditionally they have been very low. I 
think the program and its integrity--and I thank this Committee 
for holding this oversight because we want to preserve this 
program and make sure that there are not third-party players, 
and you can preserve this program so that we can offer--these 
are good customers. They just needed extended terms.
    Mr. BLUM. I was Chairman of the Director's Credit Committee 
on a $1.5 billion bank before this life and we would ask the 
question occasionally if our default ratios got too low, are we 
taking enough chances? Do you think you are taking enough 
chances? Are the collateral requirements different on an SBA 
loan than they are on a general commercial loan?
    Ms. BLANKENSHIP. Sure.
    Mr. BLUM. Are they more stringent?
    Ms. BLANKENSHIP. I mean, the collateral requirements on an 
SBA, you have more flexibility with collateral. And as well as 
terms. Terms are a big deal so that you can stretch that 
repayment term out and allow that customer to have enough cash 
flow until he gets his business up and successful and running. 
So that is one of the biggest advantages, the reason that we 
cannot make a traditional or conventional credit under current 
regulatory guidelines in our banking environment.
    Mr. BLUM. Ms. Husic?
    Ms. HUSIC. For our portfolio and our non-SBA, so our 
delinquencies and our nonaccrual, we are at .42 percent of our 
lending portfolio. Very pristine.
    Mr. BLUM. Very pristine.
    Ms. HUSIC. And you are looking at our asset quality----
    Mr. BLUM. Congrats.
    Ms. HUSIC.--of our SBA loans, we have a zero percent 
default rate and a 0 percent delinquency. We have been doing 
that, it will be almost 11 years. And over the past 6 to 7 
years we have been a much more robust lender in those regards. 
And I have to say, if I look historically through the life of 
Centric, especially if you look over the economic downturn, you 
would see loans that had gone bad during that period of time. I 
think especially over the past, you know, 2 to 3 years, there 
has been much improvement in the credit quality through 
financial institutions in general.
    Mr. BLUM. Zero percent, that is off the charts. You need to 
take more risk.
    Ms. HUSIC. When you see our lending numbers, we are doing 
really a robust amount. As I mentioned, last year we did over 
$41 million with 77 loans in the SBA and total lending, over 
$210 million that was improved. One of the things so important 
to us is setting the client up for success. And there is a lot, 
as I mentioned, the numbers that we approved, there is a large 
list of the numbers, and I would say equivalent to 25 to 30 
percent that we have said no to. One of the things we do like 
to do is if we do say no, we give them a way and a path how do 
you get to a yes? And so almost some homework maybe to go back 
and to say these are some of the things, if you work on and 
improve we could perhaps help you and assist you in the future, 
but until some of these things have been worked upon or done or 
enhanced, we want to set them up for success and make it a win-
win.
    Mr. BLUM. Ms. McDonald?
    Ms. MCDONALD. Well, just like Ms. Blankenship and Ms. 
Husic, we have a very low delinquency ratio, charge-off ratio. 
Again, not at 0 percent. We do take a little bit more risk. But 
it depends on what the needs of the member are, and for us it 
is what can we do to help the member? How can we help them 
either grow their business or start a new business?
    Mr. BLUM. Is it higher or lower than your commercial loan 
portfolio in general?
    Ms. MCDONALD. It is generally just a bit higher, but our 
commercial loan portfolio is incredibly low as well. I want to 
say somewhere between 1 and 1-1/2 percent.
    Mr. BLUM. Would your lender banks, what would the 
experience be there in credit unions?
    Mr. WILKINSON. Expecting that you were going to ask this 
question I brought the numbers. So there are two different ways 
to look at this, the way you as a banker would look at it, what 
were the charge-offs this year, and what was our loan portfolio 
balance at the end of the year? So at the end of fiscal year 
2017, that charge-off rate was .8 for the entire 7(a) program. 
Now, the other way that the Office of Management and Budget 
looks at this is rather than as a typical banker would make a 
loan to a business and have that loan renew every year, so a 
15-year loan would be 15 separate loans for the bank. SBA looks 
at this as one long 15-year loan. So they look at it as a 
cohort. They call it a cohort of loans, and how does that 
cohort of loans perform? And they then come back with all those 
numbers from all the cohorts that they have and they put that 
in the budget request.
    So in the fiscal year 2018 budget request, our defaults net 
of recoveries over a portfolio that can span 25 years was 4.49. 
So you figure an average life of about 10 years, our annual 
charge-off rate would be somewhere just under .5.
    Chairman CHABOT. The gentleman's time has expired.
    Mr. BLUM. That is amazing, and I yield back. Thank you.
    Chairman CHABOT. Thank you.
    The gentleman from Florida, Mr. Lawson, who is the Ranking 
Member of the Subcommittee on Health and Technology, is 
recognized for 5 minutes.
    Mr. LAWSON. Thank you, Mr. Chairman. And welcome to the 
Committee.
    One other thing I read in the proposed legislation, and 
maybe you can respond to it is that the lending to smaller 
firms over 2008 to 2016 went down by about 13.7 percent, but 
the increase to larger firms went up by almost 46 percent. What 
happens in that regard?
    Mr. WILKINSON. So you are talking about loan volume?
    Mr. LAWSON. Right.
    Mr. WILKINSON. Okay. I am going to look at loans of 
$150,000 or less. Back in 2015, our numbers dropped, but our 
dollars moved up, so we were making fewer number, but larger 
dollar amounts. And then going up to the next step, 150 to 350, 
those numbers actually improved slightly.
    Mr. LAWSON. Okay. Did anyone else want to comment?
    Ms. MCDONALD. What I can tell you is that is not an issue 
at Randolph-Brooks. More than half of our SBA loans are less 
than $75,000, so that is kind of our niche.
    Mr. WILKINSON. Okay. The other thing I would add is if you 
look at the current fiscal year, the loans in the small 
categories are all up. So while through fiscal year 2017 they 
were flat or modest, they have begun to move up in the current 
fiscal year.
    Mr. LAWSON. Okay. And Mr. Wilkinson, since you are talking, 
can you discuss the effectiveness of the oversight mechanism 
that SBA had put into place, including risk profiles to 
guarantee that the 7(a) program is effective?
    Mr. WILKINSON. Yes. They developed a--they call it PARRiS, 
a risk protocol where they review lenders. It is a very robust 
system. It is still relatively new, but it looks like a really 
good system. We would like for them to have a few more years 
managing this to see how it works out, but we think it is a 
pretty good oversight tool.
    Mr. LAWSON. And one other thing that was very intriguing is 
I guess in a credit union they must be doing something very 
significant because when you say that you do not have hardly 
any defaults, what are you doing during the course of the loans 
to put you in that position?
    Ms. MCDONALD. Well, we work with our members. It is about 
communication. We look at our loans. Depending on the amount of 
the loan, we look at either a quarterly or a semiannual basis. 
We go and we talk to members. We see how things are going. We 
make sure that that line of communication is open. We have a 
very good underwriting staff and we do a very good job with our 
loans.
    Mr. LAWSON. Okay. Thank you. And Ms. McDonald, can you 
discuss the growth in the 7(a) lending? I believe that the data 
show that growth in lending has increased, so what does it do 
for the small-dollar loan? And you can tell me a little bit, 
what do you consider a small-dollar loan?
    Ms. MCDONALD. Well, for us a small-dollar loan is, well, by 
SBA standards, less than $350,000. For us, it is really 
anything less than $100,000. And again, that is mostly what our 
niche is. And your question was how are we increasing it?
    Mr. LAWSON. We have tremendous member loyalty, and so when 
you do something for a member at a $75,000 level that maybe 
they were not able to get somewhere else or maybe somebody did 
not spend the time with them and you are able to help them, 
then they tell their family and they fell their friends. And 
that is the best kind of advertising that you can have is that 
word of mouth. Randolph-Brooks has been very successful in 
helping people with their personal finances for a very long 
time. And as I mentioned before, the only reason that we got 
into member business lending is because those same members were 
coming to us saying we want you to help us with our business 
needs.
    Okay, and real quick, and anyone can respond to it, there 
was always some consideration that the commercial banks area 
felt that credit unions were doing more than they were supposed 
to in getting involved in business lending. Is that generally 
the same feeling?
    Yeah, Ms. Husic?
    Ms. HUSIC. We see quite a bit of that in our market area. 
We say, in fact, the credit unions are reaching out to do more 
commercial loans on their various electronic signs out in front 
of their numerous buildings. They do. They have signs ``We do 
commercial loans.'' And there is a big push towards it.
    Our goal is, yes, we want to help the small business in our 
community, just the piece is we would like to be able to have a 
level playing field in order to compete.
    Mr. LAWSON. Mr. Chairman, with that, my time ran out. I 
yield back. I have a lot more questions I could ask.
    Chairman CHABOT. All right. Thank you very much. The 
gentleman's time has expired.
    The gentleman from Kentucky, Mr. Comer, is recognized for 5 
minutes.
    Mr. COMER. Thank you, Mr. Chairman. And my questions are 
going to be geared towards Ms.--is it Husic? Am I pronouncing 
that right? I appreciate the American Bankers Association. Like 
Congressman Marshall and Congress Blum, I served as a director 
of a bank, 15 years, community bank back in Kentucky. And we 
did not do very many SBA loans. I know other banks did, but we, 
for whatever reason, did not do that many. But I am curious, 
when a small business customer enters your bank, how does the 
conversation proceed all the way to a SBA loan? Is there a 
reason you send it to the SBA or what is the process to get 
that customer towards that SBA loan?
    Ms. HUSIC. Sure. So at Centric Bank, we have a total of 15 
commercial lenders. We do not have any individuals that are 
solely focusing on SBA loans. I would say out of those 15, 
about half of them are contributing to the bulk of our SBA 
loans. And again, they are doing other loans that are non-SBA 
as well. So, in times, and just recently, I sat down with a 
client, and many times a prospective client. So part of the 
conversation when someone says they are looking to say maybe 
start up a new business or acquire a business, we go through 
the process to ask them, you know, do you have a business plan? 
From there, you know, looking at the specifics with the 
financials, the tax returns of them personally, personal 
financial statement, a business plan; for the business perhaps 
they are acquiring, the financials to support that and their 
projections. First and foremost, we are always looking at can 
we do this loan conventionally? That is where we start.
    When there are times that we are unable to get them there, 
we are looking at perhaps they do not have the required amount 
of down payment, 20 or 25 percent in, to purchase to have their 
own skin in the game of their own funds and needing a lesser 
down payment. Is it a collateral shortfall? As when they are 
purchasing a business there might be a more significant dollar 
that is associated with good will. We are not going to do an 
extended payment terms of, you know, past a 7- or 10-year if we 
are doing that conventionally. So first and foremost, we walk 
through those questions, can we do it conventionally? When we 
cannot accomplish that, we like to look at how do we get the 
client to a yes?
    So the SBA program would be the next one we are looking at. 
And at times, we are looking at the SBA 504. So it is not 
necessarily always the 7(a). We are looking at what makes the 
most sense for that particular customer in front of us. In the 
end, we want to be able to set them up for success through that 
process. And at times I look at it, we are a consultative 
banker to them and trying to help navigate through the process, 
and maybe some things they do not have sufficient information 
coming to the table.
    Mr. COMER. I am going to switch gears here. Dodd-Frank, 
that is something I hope that we can somehow repeal. I know the 
House has passed legislation to repeal it. Maybe a compromise 
since we cannot seem to get there in the Senate would be just 
to focus on community banks, try to ease up the regulatory 
burden that community banks face with, in my opinion, the 
excessive regulations and the excessive compliance that is 
required now because of Dodd-Frank.
    My question with respect to this testimony, has Dodd-Frank 
had any effect on the 7(a) loan program? Are more customers 
having to qualify now for an SBA loan because of Dodd-Frank or 
less or has it affected availability and access to credit any 
with the SBA program?
    Ms. HUSIC. Well, I look at--there is an aspect of Dodd-
Frank that has not even come into place as far as being 
effective for banks needing to do, and that is with small 
business lending where the data needs to be compiled and will 
need to be compiled going forward if something is not done or 
impacted, we are to compile that similar to HMDA for the 
residential loans. So that is particular. That is outstanding.
    You know, in general, Dodd-Frank, the addition of hiring 
individuals for the compliance rules to be able to oversee, so 
that has cost us as community banks to having that. You know, 
you get into qualifying mortgages. You get into a lot of 
noncommercial as well, but it has, the regulatory burden has 
been significant and onerous on community banks.
    Mr. COMER. Okay. Thank you, Mr. Chairman. I yield back.
    Chairman CHABOT. Thank you. The gentleman yields back.
    The gentlelady from Puerto Rico, Jennifer Gonzalez-Colon, 
is recognized for 5 minutes.
    Ms. GONZALEZ-COLON. Thank you, Mr. Chairman. And thank you 
for all our witnesses today.
    My first question will be to Ms. McDonald, and it will be, 
as part of your testimony you highlighted the importance of 
better definitions for penalties on page 15. What kind of 
errors should be defined as minor compliance errors and why?
    Ms. MCDONALD. Thank you. The minor compliance errors would 
be if somebody put the wrong date on something, if somebody 
checked the box wrong. What we would like to see is there be a 
difference between willful malicious negligence in trying to do 
something on there, and another would be it is a training issue 
and we screwed it up and we need to understand what the 
penalties are because between 0 and $250,000, that is a big 
number.
    Ms. GONZALEZ-COLON. And what penalties should we apply to 
those areas?
    Ms. MCDONALD. Oh, gosh. In most cases I would say if it is 
something like where you changed a date or you messed up in 
that, it would be better to point it out first and then have 
some type of a penalty after that.
    Ms. GONZALEZ-COLON. Okay. My second question will be to Mr. 
Wilkinson. And it will be, you mentioned the PARRiS system on 
page 10 of your testimony, highlighting that it is in the final 
stage. Do you think the system can converge with the new 
regulations or be adapted?
    Mr. WILKINSON. To the proposed legislation?
    Ms. GONZALEZ-COLON. Yes.
    Mr. WILKINSON. Oh, yes. I think it can. That should not be 
an issue at all.
    Ms. GONZALEZ-COLON. So without a problem?
    Mr. WILKINSON. Not in my opinion.
    Ms. GONZALEZ-COLON. Okay.
    Mr. WILKINSON. SBA may have a difference of opinion, but it 
should work just fine.
    Ms. GONZALEZ-COLON. Okay. And my last question will be to 
Ms. Blankenship. In your testimony you mentioned the Credit 
Elsewhere Test. Please explain how the test operates and the 
average time it takes to do that and what other recommendation 
is required in addition to the inability to receive the 
conventional credit?
    Ms. BLANKENSHIP. Well, I think the Credit Elsewhere Tests 
were encouraged by, as Mr. Wilkinson said earlier, it was 
fairly ambiguous before, and the last thing that we want to do 
is be out of compliance with the expectations of the program. 
So by defining the Credit Elsewhere Test criteria and making it 
as simple as possible, although, remember, every applicant is a 
custom deal more or less, and typically a lot of times we would 
use--what our regulators would allow as a conventional loan and 
if we could not get that done, and you can look at their credit 
scores or their lack of collateral. So it is fairly easy to 
know that this would not be a slam dunk credit approval 
process. Again, I just applaud this Committee for trying to 
preserve this SBA program. We have used SBA programs since we 
opened our bank in 1986 and it is a cornerstone of our lending. 
Thank you. We appreciate that.
    Ms. GONZALEZ-COLON. We do support it.
    What other persons or people are involved in this process 
besides the bank and the client?
    Ms. BLANKENSHIP. The other, well, at Bank of the West, 
since we have had this program since 1986, we have a very 
dedicated and trained--this is a niche program, and it is 
complicated. So we actually have about six people on staff that 
specialize in SBA. So they work in conjunction with the lender, 
and so we have our credit analyst and our loan department and 
our underwriters that also assist that loan officer.
    Ms. GONZALEZ-COLON. Yeah, but besides the client and the 
bank, to the Credit Elsewhere Test, is it anybody else besides 
the client and the bank, outside the bank and the client that 
is working on that or no?
    Ms. BLANKENSHIP. Typically, it would just be the client 
coming to the bank for us.
    Ms. GONZALEZ-COLON. Okay.
    Ms. BLANKENSHIP. And then we would determine if it meets 
the criteria of the Credit Elsewhere Test.
    Ms. GONZALEZ-COLON. Thank you for being here.
    And with that, Ms. Chairwoman, I yield back the balance of 
my time.
    Ms. RADEWAGEN. Thank you very much. Talofa and good 
morning. You know, I am really looking forward to being back 
home in sunny and warm American Samoa. And I want to thank the 
Chairman and Ranking Member for holding this hearing.
    So I have got a question for all of you. From your 
perspective, does the length and the cumbersome nature of the 
SBA application process hurt a small business' ability to 
access capital? Ms. Blankenship?
    Ms. BLANKENSHIP. Well, it is a cumbersome and lengthy 
process and, you know, I would be lying if I told you that our 
customers are often disgruntled with the amount of paperwork, 
but I think when we show them that it is such a viable 
alternative for them and they could not get this credit 
elsewhere, and in our case, since we have been doing this for 
over three decades, we have sort of perfected holding their 
hand and counseling them and walking them through the process. 
We would like to see it streamlined. We would like to see more 
specific definitions, but it works for us.
    Ms. RADEWAGEN. Ms. Husic?
    Ms. HUSIC. To the same points, it is a more complex process 
and I have to say of all of our small business clients that 
come into Centric, and I would say less than 5 percent walk in 
the door and say I want an SBA loan. And in fact, when that 
topic ends up getting brought up for a discussion point that 
they did not qualify for conventional lending, you have 
probably about half of them saying I do not want to do a 
government guaranteed loan because they have said I have heard 
through other individuals that it is a very complex process, it 
is very time-consuming. And for us, we are not a preferred 
lender. I would say an average turnaround from application to 
the time we close could be 6 to 7 weeks. We have had those that 
have been in excess of 3 months.
    So I think some of those things could be perceived by that 
small business client as, again, cumbersome. Again, to the 
point of, you know, that at the end, if that is the way that 
they are going to be able to realize their dream of owning 
their own business, we can get them to a yes by that and to 
show them, you know, we are there working with them as a 
partner to accomplish that.
    Ms. RADEWAGEN. Ms. McDonald?
    Ms. MCDONALD. Just like they said, there is a perception 
that SBA loans are very onerous; that they take a lot of time. 
We are a preferred lender, but there are a few times that we do 
have to send it through general processing and that can take up 
to 8 weeks. So that is somewhat frustrating, particularly for 
our members. As I think Ms. Blankenship said, the benefits to 
the member is what helps us sell the program.
    Ms. RADEWAGEN. Mr. Wilkinson?
    Mr. WILKINSON. Last year we did over 62,000 loans. We are 
on pace to do over 65,000 loans this year, so there are a lot 
of small businesses that do not find this too cumbersome, I 
think especially when they figure out that they are able to 
appropriately finance a long-term asset with a long-term loan 
that reduces their monthly payments and puts their business in 
a proper spot, the paperwork suddenly gets forgotten.
    Ms. RADEWAGEN. Thank you. I reserve my time.
    Chairman CHABOT. Thank you very much, Madam Chairman.
    And we want to thank everyone for coming. If people are 
wondering what happened, we had a markup in Judiciary. Most 
members, in fact, all of us are on several committees and the 
Judiciary was marking up a bill and they needed my vote for it 
to pass, and it did, so. But I think all the members who had 
any questions got to ask them.
    We want to thank the very distinguished panel for their 
excellent testimony this morning and now into this afternoon. I 
think you all did a very good job. It helped us to learn more 
about this program and how it impacts out there, especially 
amongst small businesses, which after all is the focus of this 
Committee; and also, the legislation that we are considering as 
well, which is both bipartisan and bicameral since the Senate 
is considering as well. So we want to thank you very much all 
for shedding light on that.
    And I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered. And if there is no further 
business to come before the Committee, we are adjourned. Thank 
you very much.
    [Whereupon, at 12:31 p.m., the Committee was adjourned.]
    
    
    
    
    
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