[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE ECONOMIC INJURY DISASTER LOAN PROGRAM: A VIEW FROM MAIN STREET
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JUNE 10, 2020
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-081
Available via the GPO Website: www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
41-292 WASHINGTON : 2020
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
Melissa Jung, Majority Staff Director
Justin Pelletier, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Nydia Velazquez.................................................. 1
Steve Chabot..................................................... 2
WITNESSES
Ms. Nancy Sexton, Owner, The Muse Rooms NoHo, North Hollywood, CA 5
Mr. Jerome Whack, Owner, Christian Street Pharmacy, Philadelphia,
PA............................................................. 7
Dr, Craig H. Gerstein, Assistant Professor of Ophthalmology,
Northwestern University Feinberg School of Medicine, Gerstein
Eye Institute, Chicago, IL..................................... 8
Ms. Karen Kerrigan, President and Chief Executive Officer, SBE
Council, Vienna, VA............................................ 10
APPENDIX
Prepared Statements:
Ms. Nancy Sexton, Owner, The Muse Rooms NoHo, North
Hollywood, CA.............................................. 28
Mr. Jerome Whack, Owner, Christian Street Pharmacy,
Philadelphia, PA........................................... 32
Dr. Craig H. Gerstein, Assistant Professor of Ophthalmology,
Northwestern University Feinberg School of Medicine,
Gerstein Eye Institute, Chicago, IL........................ 33
Ms. Karen Kerrigan, President and Chief Executive Officer,
SBE Council, Vienna, VA.................................... 37
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Asian American Hotel Owners Association...................... 43
THE ECONOMIC INJURY DISASTER LOAN PROGRAM: A VIEW FROM MAIN STREET
----------
WEDNESDAY, JUNE 10, 2020
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:10 p.m., via
Webex, Hon. Nydia Velazquez [chairwoman of the Committee]
presiding.
Present: Representatives Velazquez, Finkenauer, Golden,
Kim, Crow, Davids, Chu, Evans, Schneider, Espaillat, Delgado,
Houlahan, Mfume, Chabot, Balderson, Hern, Hagedorn, Burchett,
Spano, Joyce, and Bishop.
Chairwoman VELAZQUEZ. Good afternoon. I call this hearing
to order.
I want to thank everyone for joining us this afternoon for
our Committee's first official remote hearing. I want to make
sure to note some important requirements.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. Also, if you have to participate in another
proceeding, please exit this one and log back in later. Please
remember to remain muted until you are recognized to minimize
background noise.
Over the last few months, the outbreak of COVID-19 has
meant an unprecedented public health crisis and a dire economic
crisis. We have lost over 110,000 people to the disease and 40
million remain unemployed.
Back in February, as the pandemic was getting worse, we
knew that we needed to take action to help our small businesses
survive the economic downturn. We started working with the SBA
and governors around the country to leverage the SBA's disaster
resources available through the Economic Injury Disaster Loan
Program, also known as EIDL.
As the virus continued to spread, more states and local
governments began enforcing stay-at-home orders and business
closures. We quickly realized Congress needed to do more to
meet the full scope of the problem, and that is when we started
working on what ultimately became the CARES Act. To help small
businesses and eligible nonprofits, Congress created the new
Paycheck Protection Program, expanded eligibility to the EIDL
program, and provided payment and interest relief for current
SBA borrowers. I worked tirelessly to secure $10 billion in
funding to create a new EIDL Emergency Grant Program which was
designed to get money into the hands of struggling small
businesses quickly. Borrowers could request a loan advance of
up to $10,000 within 3 days of applying that need not be repaid
even if the applicant was eventually denied the EIDL.
Due to the unprecedented demand for the program, Congress
infused another $10 billion into the Emergency Grant Program
and an additional $50 billion in the loan program as part of
the Paycheck Protection Program and Healthcare Enhancement Act.
Congress also increased SBA funding for salaries and expenses
to hire staff, upgrade technology, and ultimately, respond to
demand in a timely, efficient fashion.
Besides these steps, and more than 3 months after Congress
first enacted legislation to provide economic relief to small
businesses, borrowers are still facing significant challenges
with EIDL grants and loans. For example, EIDL loans are
supposed to have a maximum loan size of $2 million. We learned
that SBA imposed a maximum loan size of $150,000, shortchanging
millions of small businesses. Unfortunately, we also learned
that SBA is limiting the crucial grants to 1,000 per employee.
Some are not even receiving the grant at all which is simply
unacceptable. This is one thing the positive impact this
program could have for small businesses that need help the
most.
We have also heard that the SBA has not communicated
effectively with applicants, nor has it provided them with
reliable methods to check the status of their application.
Applicants need to know where they stand in the queue to
approximate how much longer they can expect to wait to receive
financing. Given the current economic climate, if they are
going to be denied, they deserve timely action so that they can
explore options for capital elsewhere.
These are just some of the reports the Committee has
received with the SBA administration of the EIDL program in the
COVID-19 era. As the Committee undertakes its oversight duties,
we want to begin by hearing directly from small businesses who
have applied for the program so that we can understand the
successes and challenges they have experienced.
However, in order to fully perform our work, we also need
to hear from the Small Business Administration. Without their
appearance and testimony before this Committee, it would be
difficult to make additional changes to the agency's program.
Earlier today, Administrator Carranza testified before the
Senate Small Business Committee, and it is my hope that she
will testify before us soon as well.
With that, I look forward to hearing from our witnesses
about their perspective on how Congress can keep working to
improve the EIDL program and where we should focus our
oversight efforts.
I now yield to the Ranking Member, Mr. Chabot, for his
opening statement.
Mr. CHABOT. Can you hear me now?
Thank you very much. Thank you, Madam Chairwoman for
holding this important hearing relative to the SBA's EIDL Loan
Program.
Before I begin my comments though I would like to comment
about the virtual format that we are having here today. And I
certainly do not hold you responsible for this, but I think the
speaker should have the House of Representatives in session. We
have an awful lot of important work to do, obviously relative
to small businesses, but there are so many other issues that
the country is facing right now, Congress ought to be together.
We represent the American people in dealing with these various
challenges that our Nation has before us and we ought to be
here.
Now, I happen to be in Washington right now. I am in my
office because I am also on the Judiciary Committee and we have
a hearing going on as I speak relative to the tragic killing of
George Floyd and the aftermath of that. I was there this
morning. After I give my opening statement I actually have to
go back there because I will be asking questions shortly here.
But again, I do not hold you responsible, Madam Chair. I
think, you know, it is commendable, a tremendous job. I would
prefer it if you were the Ranking Member rather than the Chair
but, you know, we both exchanged those positions on occasion
over the years, and I think you do a great job. But Congress
should be in session and I cannot emphasize that strongly
enough.
Relative to the EIDL Loan Program, it operates within the
SBA's Disaster Loan Program and it was already up and running
as we know long before the COVID-19 swept across the globe. It
is important to note that the SBA's Disaster Loan Program has
had its trouble in the past, but it was consistently making
improvements. It was supposed to be a regional program that
provides assistance to small businesses after a disaster.
COVID-19 has presented numerous challenges to the program. The
economic downturn caused by the Corona virus crisis has
completely overwhelmed the EIDL program. As the crisis
unfolded, the lines of communication from the SBA to businesses
about the EIDL program unfortunately has deteriorated.
Additionally, the total loan amount and the grant amount
available in the program continued to be uncertain. These
hurdles and roadblocks have impacted a small business's ability
to make important and critical decisions during these uncertain
times. Thus far, the program has provided assistance to over 1
million small businesses all across the country to a tune of
approximately $80 billion.
In my home state of Ohio, for example, it has provided over
25,000 loans for a total of $1.7 billion. Today, communication
is slowly improving but certainly, more work needs to be done,
and I commend you, Madam Chair, for holding this hearing in
order to assist us in getting that job done and sending letter
to the SBA that they just have to improve. We obviously sent
the letter together in a bipartisan manner just recently urging
the SBA that they have a lot of things they have to improve on.
It is critically important that we have this discussion to
understand how small businesses have fared during this crisis
and how Congress can work to make improvements. Throughout this
entire crisis, I have joined dozens of my House colleagues on
conference calls and town hall meetings and a whole range of
calls and conference calls with small businesses in their
districts. Questions on the EIDL program were raised on a great
many of these calls. Now, obviously, their principal interest
was in the PPP, the Paycheck Protection Program, but the EIDL
Loan Program is still there and dramatic improvement is needed.
Congress has worked in a bipartisan manner to improve the
Paycheck Protection Program. We must now work together to
ensure that the EIDL program is operating efficiently and
effectively for small businesses during this pandemic and
following it. I look forward to discussing solutions and next
steps with all of our witnesses today. It is important that we
move forward with practical reforms that deliver for small
businesses in my district and your district and districts all
across the country.
And Madam Chair, I mentioned that following my opening
statement I have to go back to the Floyd and Judiciary
hearings, so I will be heading over there. I am not sure if I
will be back in time for the question part, but I want to thank
you for holding this hearing, and I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Chabot.
Unfortunately for you, you might have to wait a little
longer.
Mr. CHABOT. Okay.
Chairwoman VELAZQUEZ. To go from ranking to Chair.
I would like to take a moment to explain how this hearing
will proceed. Each witness gets 5 minutes to provide a
statement, and each Committee Member will have 5 minutes for
questions. Please ensure that your light is on when you begin
speaking and that you return to mute when finished.
With that, I would like to thank our witnesses for taking
time out of their busy schedules to join us.
With us today we have Ms. Nancy Sexton, the Owner of the
Muse Rooms, a co-working space in the Los Angeles area. After a
career in the Arts, she conceived her co-working business in
August of 2015 and taught herself how to write a business plan
to get started. In just 4 years, her business successfully grew
into two locations right before COVID-19 struck. She applied
for an EIDL but encountered many of the challenges that have
been reported with the program. Ms. Sexton, thank you for
joining us today and for sharing your experience.
I now would like to recognize the Vice Chairman of the
Committee, Mr. Evans, to introduce our second witness.
Mr. EVANS. Thank you, Madam Chair. I like the sound of
that.
Mr. Jerome Whack is a pharmacist and an owner of Christian
Street Pharmacy located in the diverse neighborhood of South
Philadelphia. He has owned and operated the pharmacy since he
graduated from pharmacy school 33 years ago. Mr. Whack is a
lifelong resident of Philadelphia where he attended two of my
district's many excellent colleges, Temple University and the
Community College of Philadelphia, my alma mater. I could not
ask for a greater representative for my district to speak to
the Small Business Committee on this important topic. I commend
your commitment to serving and supporting the amazing citizens
of Philadelphia and thank you for participating in this
hearing.
I yield back to the Chairwoman.
Chairwoman VELAZQUEZ. Thank you, Mr. Evans.
Now I would like to recognize Mr. Schneider of Illinois to
introduce our third witness.
Mr. SCHNEIDER. Thank you, Madam Chairwoman.
It is my great pleasure to introduce my constituent, Dr.
Craig Gerstein, and to thank him for sharing his perspective
with us today. Dr. Gerstein lives in Highland Park and has
practiced ophthalmology in the Chicago area for the past 20
years. I will share that story a little bit in a bit, in a
moment. He runs the Gerstein Eye Institute jointly with his
father, Melvin, who started the practice more than 50 years
ago. Dr. Gerstein earned his medical degree from the Chicago
Medical School. In addition to his practice, Dr. Gerstein also
serves as an assistant professor of ophthalmology at
Northwestern University Medical Center. I have known Craig for
many years and appreciate him sharing his perspective as a
small business owner navigating both the complexities of this
pandemic, but also the challenges he faced with his EIDL loan.
Thank you for joining us today, Craig.
Chairwoman VELAZQUEZ. Thank you, Mr. Schneider.
Now I would like to turn it over to Mr. Bishop to introduce
our last witness.
Mr. BISHOP. Thank you, Madam Chairman.
Our next witness is Karen Kerrigan. Ms. Kerrigan is the
president and chief executive officer of the Small Business and
Entrepreneurship Council, also known as the SBA Council. Ms.
Kerrigan has multiple decades of advocating for small
businesses and the entire small business ecosystem. With an
expertise in startup funding and business growth, Ms. Kerrigan
serves on numerous boards and coalitions. Ms. Kerrigan,
welcome.
And Madam Chairman, I yield back.
Chairwoman VELAZQUEZ. Thank you.
Now I would like to recognize Ms. Sexton for 5 minutes.
STATEMENTS OF NANCY SEXTON, OWNER, THE MUSE ROOMS NOHO; JEROME
WHACK, OWNER, CHRISTIAN STREET PHARMACY; DR. CRAIG H. GERSTEIN,
ASSISTANT PROFESSOR OF OPHTHALMOLOGY, NORTHWESTERN UNIVERSITY
FEINBERG SCHOOL OF MEDICINE, GERSTEIN EYE INSTITUTE; KAREN
KERRIGAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SBE COUNCIL
STATEMENT OF NANCY SEXTON
Ms. SEXTON. Thank you, Madam Chairwoman, and the entire
Committee on Small Business for asking me to come here today
and share with you the challenges that I faced when applying
and receiving the EIDL loan.
And like she said, my name is Nancy Sexton and I own and
operate The Muse Rooms. It is a co-work ing space in North
Hollywood in California. I am not from L.A. I was born and
raised in Ohio. I lived in New York for almost 12 years, and I
lived in Italy for 4. I have had a lot of great accomplishments
in my life, but outside of marrying my husband, nothing has
made me prouder than opening The Muse Rooms.
Now, just so you know, The Muse Rooms is a working space,
and we provide a workspace for entrepeneurs, creatives, and
small businesses. We offer desk space, offices, and meeting
rooms.
The Muse Rooms started with my idea in August of 2015, and
within 3 months we opened. We were so successful that that
summer we decided to open our second location in Burbank. And
then we were able to go back and expand our first location, and
within 4-1/2 years, we have expanded to 14,000 square feet with
over 120 members.
The COVID hit. We shuttered our doors on March 17th prior
to Mayor Garcetti's stay-at-home order. And at this time we
suspended our billing because how can you charge somebody if
they cannot use your service?
Then the SBA announced their loans, and then I worked with
the LASBDC network to get all my ducks in a row to apply
because there was a ton of paperwork that was required. On
March 23rd, I started the EIDL loan process, and this is when I
started uploading my documents.
And over the course of the next 7 days, I was on hold for
more than 25 hours and I had uploaded my application, I had
faxed it, I had emailed it, and each time I was told, oh, no,
no, no, you are doing the wrong thing. Until finally on the
30th I was told, you have just got to go to this new portal.
Super easy. It only takes 5 minutes. You do not even need
documents.
So I went to the new portal, and it was super easy. So
easy, in fact, that I did not even get an email confirmation
that I had applied. Now, I was smart enough to write down my
loan number so that when I called back I had a point of
reference. When I called, I mean, I was only told, look, these
are the next steps. You are going to get an email to log into
the portal. Then you are going to be able to talk to somebody.
They are going to look at your documents and they are going to
tell you how much money you are going to get. And it should be
two and a half times your monthly bills.
Now, remember, I am not making any money and my bills are
stacking up. So on the 21st of April, I finally received my
advance. It was only a grand because I do not have employees.
And I was super psyched because my neighbor next door, now he
had already gotten funded and he had received more than what he
thought.
So over the next 10 days I called several times wondering
what was happening because nothing was being communicated. No
emails. No letters. And when you call you get a different
answer each time.
Now, on May 1st, my credit was pulled, and I got really
excited. I have got two landlords with their hands out. I have
no income. I called. I get the same story. You are going to get
an email. You are going to talk to somebody. You are going to
submit loan documents. Do not worry.
May 16th, I got that email. And when I logged in to see the
amount that was being offered, it did not even cover one month
of my expenses. So, I called, and I was told by the woman on
the phone, she read a statement to me for people who were
calling in requesting more money than what was being offered.
And she told me this; that in order for all businesses to get a
little money, they were limiting the amount distributed. And
remember, this is when they were supposed to be giving up to
150K.
I was taken aback. I was pretty upset. I mean, I had no one
to talk to. I could not call anybody and no one to plead my
case to. So the SBA EIDL loan that I thought was going to save
my business has now put me in a position that guarantees that I
am going to have to close one of my locations. And I do not
know how long that will last.
The stress of COVID was bad enough. I mean, seriously. This
SBA loan experience, 58 days of not knowing anything on top of
COVID, this has been the most stressful period I have ever
experienced, ever. It has been horrendous. My entire business
is built on customer service. Good communication is king. And
let me tell you, without that you are sending businesses into
absolute chaos.
And I thank you for my time.
Chairwoman VELAZQUEZ. Thank you, Ms. Sexton. Your time has
expired.
Now we recognize Mr. Whack for 5 minutes.
STATEMENT OF JEROME WHACK
Mr. WHACK. Hello. Can you hear me?
Chairwoman VELAZQUEZ. Yes, we can hear you.
Mr. WHACK. Thank you for the opportunity to testify before
your Committee today. And I do apologize for the problem I am
having with my camera. I am very computer illiterate. My son
set this up, and of course today it is not working. It worked
last night. We did a dry run.
But I would just like to thank you and to just basically
highlight the testimony that I wrote, and I hope you have it in
front of me.
Very quickly, as Congressman Dwight Evans stated, I am a
longtime resident of Philadelphia, Pennsylvania. I came here
very young, as an infant, with the great migration from the
South. My folks were from South Carolina. They left after my
father got out of the Navy, after World War II, and came to
Philadelphia. He wanted to have a better life for me and my
other seven brothers and sisters.
I have been here at Christian Street Pharmacy since about
1987, and over the years this area has changed tremendously.
When I came down here it was known for, the word was ``moral
hazard.'' They would not even give me insurance on the building
because it was predominantly Black and redline.
Fast-forwarding to 2020, it is about 90 percent White. It
has been gentrified by what I call landlocked. I have CVS two
blocks away from me, Rite-Aid four blocks away from me,
Walgreens two blocks away from me, and I am still in the
process of holding on to the clients that I had prior to this.
Pharmacy unfortunately is a very narrow profit margin
business today with the competition that I just stated to you.
It is very difficult normally with the very low rate of
reimbursement. It is particularly hard with the copays. Many of
the people that I serve are poor. They are part of the 25
percent of the people that the Charitable Trust identified as
being at or below the poverty level of Philadelphia, and yes,
most of them look just like me and Dwight, Congressman Evans.
So what we do characteristically, and we have been doing,
is we have been giving free deliveries, and we run what they
call tabs. Folks who do not have the copays to cover their
medicine, we show it and they are able to access their funds
the first of the month with Social Security or whatever
insurances they have, they will come and straighten their tab
out.
Well, in view of what has happened in the country with the
COVID-19 crisis, many of these people are very financially
strapped. They are unable to pay their copays, and for the most
part we have had to eat it. When I say ``eat it,'' we forgo the
copays and still continue to fill their prescriptions and we
are operating at a loss. The profit margin for an independent
retail pharmacy in today's climate according to the National
Committee of Retail Pharmacists is around 3 to 5 percent. So a
very, very narrow profit margin. And when you couple that with
the loss of copays, the fact that the PBM, pharmacy benefit
managers, like Medco, CVS Caremark have for some reason slowed
down. I do not know why. Slowed down on the reimbursement. It
is like being caught in a three-way street. You cannot get your
copays. You are not being properly reimbursed. And on top of
that, I was turned down for the SBA loan. So it is a matter of
trying to stay afloat and navigate through these very difficult
times.
To give you a quick, quick kind of summary of what I am
saying, a small pharmacy bills up to say 50 prescriptions a
day. A medium pharmacy is between say 100 and 200 prescriptions
a day. A high-volume pharmacy would be showing greater than 200
prescriptions a day. So what that means is, let's make it
simple. If you filled 50 prescriptions a day at the lowest
copay, $2, potentially, you could lose $100 a day. This is, you
know, over and above the other cash crunches that you are
dealing with.
So it has put me in a pretty hard position this way, not to
mention the kinds of expenses that you need just to operate.
Philadelphia Electric Company, Philadelphia Gas Works, the
water, Verizon, and the like.
Can you hear me?
To let you know, it has been very difficult. I did go
through the process to apply for the SBA loan, and I had great
difficulty. It took me like a couple weeks roughly, and then
they started to advertise that you could go to your local bank.
They have some kind of portal or some kind of mechanism to go
through the bank and apply for the loan. And finally I did that
one evening. I believe it was on the weekend.
So basically, it has been a challenge, and I do ask the
Committee members if you would kindly look into the reason that
SBA is utilizing a credit check too either deny or allow
someone to receive an SBA loan.
Thank you so much.
Chairwoman VELAZQUEZ. Dr. Gerstein, can you unmute?
Dr. GERSTEIN. Yes, I am on mute.
Chairwoman VELAZQUEZ. Okay, please, you are recognized for
5 minutes.
Dr. GERSTEIN. Thank you.
STATEMENT OF DR. CRAIG H. GERSTEIN
Dr. GERSTEIN. Madam Chairman and members of the Committee,
thank you for inviting me to speak today regarding my
experience with the SBA in respect to the EIDL program.
First, I would like to introduce myself. My name is Dr.
Craig Gerstein. I am an ophthalmologist who has been in private
practice on the Northside of Chicago for the past 20 years.
The pandemic's enormous disruption of my practice required
that I needed assistance in order to survive. It was at that
time I listened to a webinar on small business resources hosted
by Congressman Schneider. On that call, a representative of the
SBA detailed the EIDL program and the application process. I
spent most of that evening locating the necessary forms, and
the next day, on March 24th, I began the process to apply for
the loan. Despite several crashes of the website and countless
hours waiting on the SBA help line, I was able to complete my
application 13 hours later.
Subsequently, I received an email from the SBA that my
application had been received and another email saying that my
application was under review. Throughout the following 3 week
waiting period, I called the SBA help line to ask questions,
only to be told that my loan was pending and in 3 weeks a loan
officer would contact me regarding my approval and discuss the
amount I needed and could borrow.
Three weeks from the date of my complete application, the
status on my portal changed from pending to please reapply to
complete your self-certification. After following the required
instructions and submitting my application online, I was being
told 3 weeks later to reapply.
I completed the new self-certification form hoping that it
was an addendum, but then I received a new application number.
I immediately called the SBA help line trying to figure out why
I had two numbers. I was concerned that I was going to lose my
position in line as the loans were said to be a first come,
first serve basis. The help line representative was unable to
explain what had happened. I wrote a detailed email to the SBA
customer service and never received an answer to my question.
Instead, I received a response that directed me to three
options: either connect to the website application page, call
the help line, or write another email.
After weeks of waiting in uncertainty, the SBA could
provide no answers and left me in a helpless position. I could
not use the website which had been removed. The help desk had
no answers and could not address my concerns. And the email
service offered nothing but an automatic reply. In desperation
I continued to send several emails, and I contacted Congressman
Schneider's office for help in navigating this situation.
While the congressman's office attempted to get information
from their SBA liaison, I once again called the help line
almost 4 weeks out. At that time, the SBA representative
explained that the loan applications submitted prior to the
newest version of the CARES Act were disregarded and that
individuals needed to reapply. I finally received an email
response from the Disaster customer service on April 25th that
simply stated you had to reapply because SBA developed a new
streamlined application process, and those who applied before
had to reapply. I received this notification as the SBA ran out
of funds from its first round of applications, and thus, shut
down their application process. I was left unknowing if my
completed application that had once been ``processed'' would
ever be considered and what having two applications meant for
my position in line for the loan.
Uncertainty kills small businesses, and this placed an
extreme pressure on my practice. We do not have the luxury of
time. Invoices, rent, utilities, health and malpractice
insurance payments, and the salaries of my staff continue to
accumulate with no realization on how I would be able to cover
those expenses. I needed the information and loan details that
would have allowed me to decide to keep going or to close up
shop, decisions that needed to be made in real time with
concrete answers. Unfortunately, hope does not pay the bills
and put food on the table.
Fortunately, after 6 weeks I received an email notification
that I was approved for a loan, yet I was not given the
opportunity to discuss the amount distributed. I accepted the
loan and sent an email with documentation to support a greater
need for additional funds but to this date I have not received
an answer from the SBA.
I hope my experience highlights while the SBA and the CARES
Act were designed to aid small business needs, the lack of
infrastructure and transparency surrounding the SBA contribute
to stress that I and other business owners were experiencing
during this economic uncertainty. The reality of the process in
dealing with the SBA, and specifically, the EIDL program fell
significantly short of what was promised with rhetoric and
reassurances. I hope in the future there is more done by
Congress to hold these loan programs accountable and to ensure
that the SBA is able to properly allocate the needed funds and
communicate to millions of small business owners during a time
of great uncertainty.
Thank you for allowing me the time to address this
Committee.
Chairwoman VELAZQUEZ. Thank you.
Now we recognize Ms. Kerrigan for 5 minutes.
STATEMENT OF KAREN KERRIGAN
Ms. KERRIGAN. Thank you so much, Chairwoman Velazquez. It
is really an honor to be here today. Let me thank you for your
leadership of the Committee and everything that you and the
Ranking Member and all the Committee members are doing to help
small businesses during this very, very challenging period. We
appreciated your early work in getting information out about
what needed to be done to change the PPP program. Obviously,
all of the members of the Committee and you listen to small
business owners, and we are just so pleased that the Paycheck
Protection Program Flexibility Act is now the law of the land.
It is going to help a lot of small businesses, but we continue
to work to make even more improvements because there is a lot
more that needs to be done.
As a membership organization with 100,000 members
throughout the country and being around now for over 25 years,
when I listen to Craig and Nancy and Jerome, I am hearing the
members, the stories of my members as well. I mean, what they
went through in terms of the program mirrors everything that
our members have gone through. And as an organization, again,
that has worked with the Small Business Administration for the
past 25 years on a lot of its programs, its education, training
programs, special initiatives, we do not take any pleasure in
pointing out the problems and challenges with the EIDL program.
And all of us knew that the SBA had a heavy and unprecedented
lift in launching this program. We at SBE Council and all the
other small business advocacy organizations that we work with,
we understood that there was going to be massive demand for
capital in the small business community but limited funds
available, especially in that first tranche of money where the
EIDL program really leaves a very, very, very small amount.
And even given many of the challenges in execution and
communication, our members in small businesses that eventually
received funds are grateful for this needed capital. But as you
well know, there are many small businesses that got lost in the
queue that did not receive funds when they needed it or
expected it. And of course, were surprised by the dollar limit
placed on the maximum loan amount and the per employee advance
limitation.
As I expressed in my written testimony, we believe that a
fair amount of this angst experienced by small business owners,
including our witnesses today, about the problems, the
communication that was generated by the program really could
have been avoided through transparent and immediate
communication about these changes.
On paper and as advanced by Congress in the CARES Act, the
EIDL loans were ideally suited for many types of small
businesses. Business owners and entrepeneurs were pleased to
see a program pass Congress that would meet their immediate
capital needs, provide some flexibility in using these funds,
and would, as advertised, deliver this capital with speed.
EIDL's breakdown as communicated by our members, small business
owners across the country and, of course, our witnesses today,
was and continues to be very sad to hear. Most small business
owners were obviously shocked by the effects of COVID-19, and
just the dramatic actions that happened afterwards, the plunge
in demand and revenues, and they were desperate to identify
sources of capital that could act as a bridge to their
reopening. These areas of concern as noted by our written
testimony included the lack of information about application
status, hearing no communication from the SBA for long
stretches of time, the shrinking advance based on employee
numbers, the much smaller loan cap than advertised by the
program and provided for by the CARES Act, confusion about how
loan amounts were determined by the SBA, and then, of course,
eventually them being shut out of the program due to the
agricultural window that was established.
So no doubt this crisis has been like none other, and
unfortunately, many small businesses needing help through the
EIDL program experienced these frustrations with the program
when every minute of your time was valuable. Focusing on
productive work and activity that would carry them through the
shutdown period and on to recovery.
Chairwoman VELAZQUEZ. Thank you, Ms. Kerrigan. Your time
has now expired.
I want to really thank all of the witnesses for everything
that you have shared here with us.
I will start by recognizing myself for 5 minutes.
Dr. Gerstein, I understand that you were drawn to the EIDL
program by the $2 million maximum loan size and that you were
disappointed to learn of SBA's $150,000 cap. I understand the
unprecedented demand for the program and for SBA to make some
difficult decisions, but they must still be operating according
to the law. Can you share with us how the smaller loan amount
has affected your business?
Dr. GERSTEIN. Yes. Thank you. Thank you, Madam Chairwoman.
I will tell you, the first issue is the continued
uncertainty. Many of us did not even know if we were going to
get any money at all, and then we were counting on at least
being able to communicate with someone what type of needs we
had and how that loan was going to eventually help us. The
$150,000 that I was granted was barely enough to cover my
expenses for a month. And at this time, I am still not
operating at 100--not even close to my normal pre-COVID level.
In fact, for the last 2 months we have been seeing maybe 15
percent of my normal patient volume, and we were not operating
until approximately about 3 weeks ago. So to not know what is
happening and then finally just to be given a certain amount of
money with no answers, with no recourse to try to appeal,
really kind of sets me as a small business--now I have to
explore other avenues. Now I am starting from the beginning
again trying to look at different aspects that I can get
capital in order to maintain my business.
Chairwoman VELAZQUEZ. Thank you, Dr. Gerstein.
Ms. Kerrigan, I agree with you that we probably need to do
more. We might have to do another relief package. We do not
know how this program has worked. We do not have any data.
There are no explanations that have been provided to us as to
the decisions that were made, like changing the loan size from
2 million to 150,000. Then like Dr. Gerstein and Ms. Sexton
explained, they were not able to get any answers, any
information as to the status of their loan applications. Do you
agree with me that as Members of this Committee, we cannot move
to make any other changes or expand the program without the
administration coming before the Committee and providing the
information that is required for Members of Congress to do our
job, and that is oversight, and that is to get to the bottom of
what happened so that might require us to make some legislative
changes?
Ms. KERRIGAN. Well, I agree totally. We need that
information, that data from the SBA. And we need what went into
the decision-making in terms of going off course from what was
actually in the CARES Act. And yes. I mean, in order to do your
job, it would be great if we had more money. It would be great
if we could make those small businesses whole that did not
receive the $10,000 grant as they were promised, and perhaps
more money can be provided for that. But yeah. I think
taxpayers, the American public want you to have as much
information as possible. Data, feedback in order to know what
is the path forward with this program absolutely is critical,
critical, critical.
Chairwoman VELAZQUEZ. Thank you so much.
Mr. Whack, would it be helpful for applicants if SBA
clearly communicated its credit minimum so applicants would
know exactly where they stand prior to applying for a disaster
loan?
Mr. Whack?
Mr. WHACK. Can you hear me?
Chairwoman VELAZQUEZ. Yes, now.
Mr. WHACK. Okay. I think that would be a good first step
because in addition to waiting like a couple weeks to be able
to get onto the website, you are in such a state of anxiety not
even knowing if you are going to be approved. And when they did
give me a response, that was also not that great. It took them
like almost a month later to give me a response and then it was
kind of vague. I mean, unsatisfactory credit did not really
mean a lot to me. I mean, is 600 the cutoff? Is 400? I mean,
what was it? And was there something I could have done perhaps
in filling out the application that would have made me change
the way that they looked at the application?
Chairwoman VELAZQUEZ. Thank you, Mr. Whack.
My time has now expired.
Now I recognize Mr. Balderson for 5 minutes.
Mr. Balderson?
Mr. BALDERSON. Thank you, Madam Chair. I am sorry, you cut
out there, so I did not hear my full name there, so I
apologize.
Thank you, everyone, for being here.
And my first question will be for Ms. Kerrigan. Thank you
for joining us today.
My question is, as you know all of us here are too aware
this has been a devastating time period for our Nation. Small
businesses have been forced to severely reduce their
operations, or in many instances, sadly, have had to close
their doors.
I have been in constant communication with small business
owners in my district around the many challenges they face
during this time, and something these constituents routinely
bring up is also something you have highlighted in your
testimony: access to capital now and in the near future.
From the research done by the SBE Council and your own
perspective, how have the fairly funded programs benefitted
American small businesses?
Ms. KERRIGAN. They have benefitted some. I mean, there have
been a lot of small businesses who have not been able to
benefit from these programs. I mean, if you look at the PPP
program, for example, when it first started it was those that
were largely, you know, connected to their banks and to their
financial institutions. I think more banks came online,
community banks, credit unions. And even the addition I think
potentially of Fintech, you know, the big Fintech companies,
there is like a big difference in getting this capital to a lot
of those who did not have sort of that commercial banking loan
relationship, you know, with their banks or with their
financial institutions.
So as the programs went on, both PPP and EIDL, they got
better in terms of their communication and in terms of their
funding. I think with the EIDL program, you know, it is a
different animal because with PPP you do have many players in
the private sector that are involved, right, with the
distribution of that capital and more players involved, whereas
the EIDL, it is the SBA alone. If we want to do something like
this moving forward because, you know, it is apparent that the
SBA did not have the capacity, the technology, the artificial
intelligence, all of that needed to do this very, very rapidly
and quickly. And that is what small businesses needed, whether
it was PPP or EIDL was rapid access to capital. So, I mean,
hopefully, we will not have an event like this moving forward,
but we might, and we have got to be prepared for it. Given that
we do have technology and all the innovation, I do not see why
we cannot do this rapidly, more rapidly. And I think that is
the big issue, is giving this money to businesses rapidly and
being able to communicate with them so that they can make
decisions about where they are going to be going forward and
help them navigate which, you know, this recovery period.
Mr. BALDERSON. Madam Chair, I yield back. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Iowa, Ms. Finkenauer,
for 5 minutes.
Ms. FINKENAUER. Thank you so much, Madam Chair. It is good
to see you and the folks on this Committee and the folks who
have joined us to share their perspective and help us do our
job on oversight here.
You know, one thing that I have been focused on a lot
during this pandemic is, you know, we passed these bills, the
CARES Act getting signed into law where these dollars go to
these agencies, but at the end of the day it is often up to
these agencies of how they put these dollars out, what the
rules and regulations are behind them. And it just underscores
how important it is to do the oversight with these agencies and
make sure that they are getting out to us maybe in the right
way. So thank you, thank you, thank you, Madam Chair, for
holding this hearing today, helping us do this the right way.
We clearly, listening to testimony today, and then also
hearing from my constituents throughout the 1st District in
Iowa, have a lot of work to do when it comes to oversight with
the Small Business Administration and how these programs have
been rolled out, and also how they are moving forward here.
So Dr. Gerstein, I actually, I would love to ask you a
question. I Chair the Rural Development, Agriculture, Trade,
and Entrepreneurship Subcommittee on the Small Business
Committee, and something that our Subcommittee heard about when
we held a discussion a few weeks ago was from a woman, Melissa
Moretz Baker from my congressional district in Northeast Iowa
who is also a farmer, and she said that many business owners
did not have the information they needed to determine which
Small Business Administration assistance program would work
best for their business model.
So how did you arrive at the decision to apply for the EIDL
loan rather than the Paycheck Protection loan? And also, in
hindsight, given that some of the challenges you faced in
applying for your loan and your award being less than you
needed, would you still have applied for the EIDL loan? And
would you have applied for any other, or would you have applied
for assistance at all given what you know now?
And I will let you answer that part first, and then I have
a follow-up for you.
Dr. GERSTEIN. Sure. First, I will answer, having gone
through the experience, I would not go through the experience
ever again. It was traumatic. It was stressful. There was no
communication. It took tons and tons and tons and tons of my
time trying to educate myself and trying to figure out avenues
to try to get answers. And I did apply for a PPP loan and I
very consciously did not go through the SBA simply because
there was no communication with the SBA and I did not want to
start going down that road again of trying to get something and
not being able to talk to somebody versus a bank where you can
actually make a phone call and get an answer, to answer that
part.
The way I got the information was a town hall through
Congressman Schneider's office. He kind of laid out certain
different programming and that was the loan that seemed to
promise the most. And that was the loan initially before the
PPP was out, it was cast. So, and what really was terrifying to
a small business, especially myself, was that constant reminder
of this is going to be first come, first serve. So, you know,
you knew, you could see the need was out there and you knew
that you needed to get things done in order to get in that
line. And that is where a lot of my stress came was because I
was applying, and I did everything right. I hung in there just
to get that application in only to fall into the abyss.
Ms. FINKENAUER. I know we only have a few seconds left
here, but what additional resources would have been helpful
during that process from the Small Business Administration? And
then also, now that you know what you know now, what would you
hope they do moving forward here?
Dr. GERSTEIN. Well, the two things I can say, and I am not
an expert on running the SBA in any regard but I can tell you
communication is paramount, especially with small businesses.
We need to know where we are. We need to know when we can
expect a decision to be made. And, I remember in the beginning
I was very upset that I could not request the amount I was
asking for. There was nowhere on the form to even say this is
what my need was. And that was very stressful. The more
transparency and better infrastructure to deal with the small
businesses is what the SBA can do.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
Ms. FINKENAUER. Thank you, Madam Chair.
Chairwoman VELAZQUEZ. Now we recognize the gentleman from
Oklahoma, Mr. Hern, for 5 minutes.
Mr. HERN. Thank you, Madam Chairwoman. And I know the
Ranking Member had to leave for his other Committee, and I
really want to thank the witnesses for being here today during
these certainly difficult times.
I always like to start out this way, but as a small
business owner for over 35 years, I certainly feel the pain
when we have these kind of disasters. In 35 years I have seen a
few. Obviously, nothing as severe as what we are seeing now,
and during these difficult times we are going to have stresses
on our system, and we have seen those. And as we all know, the
SBA has done about 20 years' worth of work in the last 12
weeks. So, you know, this oversight is good. It gives us an
opportunity to test the stress of our system, but we also want
to thank the great work that all of us have done in a
bipartisan way in getting the PPP loans out and the EIDL
programs out because we all know that estimates are it saved up
to 50 million jobs in America and, you know, we have got to be
very concerned about what is getting ready to happen as we roll
off of these loans.
As some of you may know, the EIDL program has done over,
you know, several hundred thousands in loans and upwards of $80
billion in loan dollars. And in my state, it is about 7,200
loans and almost a half a billion dollars in loans.
As we work, I think Administrator Carranza is working hard
to try to figure out and listen and the Chairwoman mentioned,
she has been in the Senate side listening to the Small Business
Committee there and I, too, would like for her to come back to
our Committee to hear what we have to say as well as we go
through our factfinding.
Ms. Kerrigan, you talk about some of the shortfalls in your
testimony and again, as a small business owner, I know that you
cannot be successful by drawing on past mistakes. We are here
to learn and move forward. Can we talk about solutions to these
issues on these mistakes? And what are some of the solutions
that you think the SBA could implement moving forward to
perfect the EIDL program and thereby helping more and more
struggling small businesses?
Ms. KERRIGAN. You are absolutely right. This crisis was
unprecedented and sort of the charge that was given to the SBA
was unprecedented; right? And so we certainly understand that.
And they have had their challenges over the years. They have
had their successes over the year.
I think the key one is communication. And as you heard
through the testimony today and as we are hearing from our
members, even if it is bad news, business owners want to hear
it from the SBA in terms of we are not going to turn around
your loan or you are not going to get the capital in 3 days as
was promised; right? It is going to take longer. There is
massive demand. Or we ran out of money or we are going to run
out of money within a shortened period of time. So I think the
more communication, you know, is better for small business
owners because then, as you know, as a business owner, you can
make decisions based on that; right? So more information is
better.
You know, I think the other thing with all these programs,
and including PPP, Congressman, is that, you know, as the law
is passed by Congress, that is how it has to be implemented by
the agencies. Obviously, they should be given some discretion
on things like Congress gives them, you know, but if the law
actually says, you know, a $10,000 advance, or the amount, the
max loan is $2 million, I mean, you know, the agency has to
follow the will of Congress on this. And if the money runs out
like that, then Congress can make the decision to fill the
money again.
But the other thing is also, again, in a perfect world all
these programs would have rolled out at the same time,
including the Main Street Lending Program because, you know,
they match certain businesses. They align with businesses but
that did not happen; okay?
I think the other big pieces looking at this is what is the
SBA, what is their capacity, and what are they capable of doing
in this regard? And where do we need to call in the private
sector and use financial technology? You know----
Mr. HERN. Ms. Kerrigan, I only get one question before we
run out of time here.
Ms. KERRIGAN. Okay. I am going off.
Mr. HERN. No, no, no, you are fine.
You know, we talk about SBA. I think we know that, you
know, a lot of government programs, standard programs, one size
fits all is very difficult. Can you talk about, and you alluded
to it a little bit a minute ago about what you think private
industry could do to maybe facilitate should we see this kind
of occurrence again, what private industry can do alongside the
Federal government?
Ms. KERRIGAN. Well, I think you saw the power of that in
the PPP program where it was sort of like the traditional
banking institutions, the financial institutions that were
initially part of that, and it took a while for the Treasury to
bring on Fintech; right? But once they did, this money moved
very quickly and they were very small loans, $15,000, $20,000
to the types of businesses that maybe the banks do not, you
know, were not interfacing with and serving. So, I think they
need to think forward. They need to be technology driven. And I
think that is the same way with these programs as well in terms
of these public-private partnerships. Bringing sort of the
power of technology and looking at financial, you know,
technology as a solution to all this. I really think it needs
to be incorporated over at the SBA.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
Mr. HERN. All right. Thank you.
Chairwoman VELAZQUEZ. Now we would like to recognize the
gentleman from Maine, Mr. Golden, for 5 minutes.
Mr. GOLDEN. Thank you very much, Madam Chair. And you can
hear me all right?
Chairwoman VELAZQUEZ. Yes, we can hear you.
Mr. GOLDEN. All right. I just want to make sure.
Ms. Kerrigan, I wanted to ask a little bit more from you. I
have been hearing from a lot of constituents in Bar Harbor and
Auburn, Maine, who would like to use an Economic Injury
Disaster Loan right now but they have been shut out of the
application process because they are not agricultural
businesses. I was wondering if any of your members have been
finding themselves in a similar situation of late?
Ms. KERRIGAN. Yes, absolutely. Absolutely they have. And
you know, again, it is dispiriting. And I mean, we have farmers
and members of the agricultural sector, small businesses that
are part of the SBE Council. I think what the SBA wanted to do
was to compensate, right, for them being shut out of the
program earlier. But at the same time you are shutting out, you
know, a whole slash, right, of the business sector, diverse
businesses. And again, it goes back to, look, the program
should be open to everyone. If it runs out of money, once we
know the data, and once we know where we need to go then, you
know, it can be refueled or refunded based on that. So yeah,
that was sort of a little bit of the government picking winners
and losers in the marketplace, although we love our farmers and
our members who are farmers, for sure.
Mr. GOLDEN. Yeah, certainly we do.
You know, you were talking a little bit about implementing
the program the way that it is drafted in statute and then, you
know, if the money runs out, you come and you make that strong
case for the back in the business community for more funding,
similar to what we saw with the Paycheck Protection Program,
although they obviously took a little leeway in the rulemaking
process there as well but, you know, I had businesses, like an
independent trucker, tourism businesses in my district reach
out frustrated, feeling like they had experienced a bait and
switch when the EIDL was both downsized in regard to the amount
that they could receive for those kind of more capital-heavy
businesses, but also when they were told that they were limited
to $1,000 per employee on the grant side because that was part
of the original reason why they were so interested in going
after EIDL instead of pursuing PPP in the early weeks was
knowing that that grant was going to be out there and they just
wanted access to some revenue as quickly as possible.
Ms. Sexton, I also wanted to recognize your frustration
with the repeated delays that you experienced processing your
EIDL application. I know in my office we heard from businesses
all over the district who had a lot of similar experiences. And
all of you have made the point about the importance of clear
communication so that you can at least make informed decisions
which is what I have been hearing and what my staff have been
hearing from businesses here in the state of Maine. Often it
was waiting many weeks, you know, that was the most disturbing
because it delayed them from making other potential decisions
and pursuing other means of surviving through this. It is not
to say that these were not important programs and that they
have not worked to help businesses, you know, when they have
worked smoothly. But I just want to acknowledge the frustration
that you have all shared and thank you for sharing it with us.
I think the key point there is, as you have all said,
communication not only between SBA and the Committee in
Congress but also SBA and the ultimate client, which is the
small business community. So thanks for taking part in this
today and sharing that. I have no doubt that the SBA is
listening to your testimony today and making note and that they
are going to be engaging with their clients, the business
community, and the lenders out there for feedback on how they
could improve these programs going forward.
With that I would yield back, Madam Chair.
Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
Now we recognize the gentleman from Tennessee, Mr.
Burchett, for 5 minutes.
Mr. BURCHETT. Am I unmuted? Can you all hear me? Okay,
great.
I have heard from everybody, and I appreciate everybody for
the excellent testimony given. I also wanted to welcome new
member Mr. Mfume to the Committee. I have watched him from afar
and I am looking forward to getting to know him.
I have heard what has gone wrong, and I have actually heard
all those complaints from my constituents. And I am wondering
if each of you all could briefly tell me what has gone right in
what we have been trying to do. Maybe we can amplify some of
that.
And I will yield to the folks.
Ms. KERRIGAN. Well, I will start that, Congressman, and say
for the businesses, the small businesses that were able to
access the EIDL money, they are very grateful for that support,
for that capital. I think with the PPP program, it was really
good to see the pivot that was made on that in terms of making
the modifications and changes that would make the program
flexible, practical, and relevant, you know, for small
businesses, particularly given, you know, the extension of the
shutdowns and what was happening on the ground. From our
perspective, we would have loved those PPP changes to come more
quickly, but they happened and that is good. So you all were
listening to small businesses and you made those changes. And I
think that needs to happen over at the SBA, too, but again,
this is a whole different program and I do think now Congress
needs to look forward and say, you know, is this something that
SBA should be doing as an agency? And do they have the capacity
to do that? But, look, for the businesses that got the money
because of the early intervention and the tax credits and all
those other things, those are making a big difference for small
business.
Mr. BURCHETT. Any of the others?
Dr. GERSTEIN. Yeah. What I would say is what was done right
was that Congress definitely, there was an emphasis on helping
small business. It was not just helping individuals. It was
really an attempt to help small businesses out there that were
through no fault of their own were shutting down or operating
at very limited capacity. Unfortunately, what seemed like a
great idea and the execution did not match. And the frustration
was listening to the promises and being excited about the idea
and then the reality really of not being able to access the
funds or not get your questions answered. But the intent was
there.
Ms. SEXTON. Now, I could say that for me what went right
was unfortunately very little. What did go right was my ability
to react very quickly when I saw that SBA dropped the ball. We
started a Go Fund Me campaign which actually that is what saved
me. The SBA money helps, sure, and I got a little bit of PPP
but, I mean, I feel like giving PPP back because how am I
supposed to pay that back? It is over 2 years. I mean, it puts
a burden on me more than it is helping me. So, and look, I do
not want to be complaining. I hear your question. What it did
right was once I did get approved my loan was delivered very
quickly. That was right. But I am sorry; they got so much wrong
I do not really, at this point, I am so frustrated what they
got right is kind of irrelevant.
Mr. BURCHETT. Thank you.
Any others?
Great.
Chairlady, thank you so much. I yield back the remainder of
my time.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from California for 5
minutes.
You need to unmute.
Ms. CHU. Thank you.
Ms. Sexton, as a congress member representing Los Angeles
County, I thank you for sharing your experience as a Los
Angeles business owner, a sole proprietor, and a former
creative professional. It is clear from you and the other
witnesses here today that SBA's administration of EIDL has been
unacceptable at a time when small businesses need this really
more than ever. I also imagine that many of your clients are
also self-employed individuals working in creative fields like
the music industry. And like you, the sole proprietor, self-
employed, and independent contractors constitute a significant
part of Southern California's economy, and they have been
adversely impacted by the SBA's cap on EIDL emergency grants of
$1,000 per employee. This cap is just not reflective of the
congressional intent and hurts individuals like you who despite
not having employees have high overhead costs like thousands of
square feet of leased property.
So can you describe the impact the SBA cap on the emergency
grant has on sole proprietors, self-employed, and independent
contractors like you and your clients, and give us some sense
of the unique burdens that these type of workers are facing
during the COVID-19 crisis? And also, you described so many
problems getting this emaciated loan. What would you do, what
would be your top priority and things that need to be changed
in the EIDL program?
Ms. SEXTON. Well, thank you. Thank you, Congresswoman.
Those are tricky questions a little because there are so
many. You know, out of 120 members, we have got like 60-70
people who have their own businesses; right? And so right away
one of the things that I did was, because I had so much access
to small business assistance because I am so heavily involved
in the Chamber of Commerce and working with a lot of different
organizations, I was able to put a resource page together on my
website to assist my membership. And a lot of the people were
just frustrated. They would call me with the same frustrations
that I was having, and then I would be calling my contacts,
especially those from the LASBDC, who were fantastic by the
way, and asking them to help me understand what was happening.
But quite honestly, things changed so fast in the law, or I
mean, not in the law, in the application process that even the
industry, even the organizations that were helping us try to
understand what was happening, they could not keep up. And so
what happened was, when you would be getting an answer from
somebody and have already heard that it changed, and then you
would just be frustrated going, like man, where are you? Why
are you not keeping up with this? Why is this burden on me? But
my whole idea was, like, look, if I can keep these people in
their positions, and if I can keep them working and keep them
getting money, then I can keep my business; right? I mean,
because that is what I do. I provide a workspace for them.
The frustration falls in the lines of just general stuff. I
mean, lack of communication, not knowing what was happening.
Some people were not smart enough to write down that loan
number and 19 what? And then they would call people and the
operators were misinformed giving bad direction to people on
what the next steps were. And then it falls onto, you know,
look, it falls onto looking for other money. And the PPP for
me, because I do not have employees, is whatever. You know? I
mean, you look at that and I am super organized. I have
everything ready and then I get nothing.
And so I think the biggest thing quite honestly that the
SBA could do is just communicate. Be honest with people. I need
to know what I have to do because, and I believe the other
gentleman, Mr. Gerstein said that, like, our bills are stacking
up. We have got rent to pay. I mean, I can extend it. Sure, I
can postpone payments but that does not mean they are going
away. So what am I supposed to do, you know? And so I really
thought the EIDL loan, like I said before, I really thought it
was going to save us. I really did. I mean, man, I was hoping
on that. And now I am like, if it was not for my Go Fund Me, I
would be out of the game. I would have to shut completely.
Ms. CHU. I appreciate the fact that you talk about the
SBDCs in such a positive way.
Ms. SEXTON. Yep.
Ms. CHU. And it seems to me that if the SBA is overwhelmed
in terms of being able to answer back to these loan applicants,
why do they not deputize the SBDCs to inform people on the
status of the loans?
Ms. SEXTON. I would agree that that would be an awesome
idea.
Chairwoman VELAZQUEZ. Okay. The gentlelady's time has
expired.
Now we recognize the gentleman from Florida, Mr. Spano, for
5 minutes.
Mr. BISHOP. Madam Chairman, I do not see him on the call
any longer.
Chairwoman VELAZQUEZ. He was just there.
Okay. Now Dr. Joyce from Pennsylvania, you are recognized.
Mr. Bishop from North Carolina, now you are recognized for
5 minutes.
Mr. BISHOP. Thank you, Madam Chairman. And I will say I
greet you today from our Committee room, and it is wide open
and empty, and I certainly invite others to join me here
whenever you can.
And I think, too, Mr. Whack, in particular, it has been a
bit of a disadvantage and I apologize to you for the
difficulty, sir, that you have encountered. It may be if this
is the only way that you could appear before the Committee,
then that would be better than not being able to appear, but I
certainly wish that we had been able to just have you come in
and sit down and not struggle over things like that.
I wanted to ask, and I guess I am trying to pick who, but I
was listening to the conversation, it seems to me in order for
this enterprise to be productive, we probably need to get
beyond frustration to diagnosis and make an accurate diagnosis
of the problem. The obvious import of the hearing is to lay
blame at the SBA, but I guess if Dr. Gerstein is still
available, yeah, I see Dr. Gerstein, maybe I could ask you. I
sympathize because I have heard it many, many times and I have
actually experienced it myself. And when I first learned about
what EIDL was going to be able to do, you have heard the notion
of putting out a fire with a garden hose; right?
Dr. GERSTEIN. Sure.
Mr. BISHOP. And so if you have got something, put a 1-inch
hose to put water through and you have got a big burning
disastrous fire, you may not make much progress. You mentioned
the uncertainty a lot of witnesses have and I find it to be
difficult to deal with as well, but is it not an inevitability
of the nature of the problem that we have, this nationwide
flatlining of the economy with the shutdown orders of the
entire economy, does it not seem to be that it would be hard to
scale up a program that is designed for the spawn of a tornado
or hurricane to be able to operate nationwide?
Dr. GERSTEIN. I am certainly not an expert in any regard.
If you want to ask me about eyes, I am more than happy to
answer any question on that. But how to implement policy in
Congress, I cannot explain what is the best thing. But what I
can tell you is the idea of the SBA giving a little bit to
everybody to try to quell the disaster is no different than
coming into a room where 1,000 people are dehydrated and
offering them all just little sips of water and hoping you are
going to save somebody. It just did not do enough to enough
businesses.
Mr. BISHOP. Yeah, I got that point and it is a good point.
And I just wonder if in the sense of your frustration that you
experienced as you were going through this, was it, did you
either back then or looking back at it now think that perhaps
it was just an impossibility to take SBA's EIDL, normal EIDL
program and suddenly scale it up so it could handle that sort
of task? Did that go through your mind at all?
Dr. GERSTEIN. Well, you know, part of the, you know, first
come, first serve basis that was emphasized, which showed me,
and I knew that there was going to be a lot of demand, so yeah.
I knew there was going to be a lot of demand. I did not know
that the infrastructure and the SBA was not going to be able to
handle it in any regard. But yeah, I am not surprised by that.
Mr. BISHOP. Ms. Kerrigan, and maybe if I follow it in the
conversation I was just having with Dr. Gerstein, because you
made reference to SBA sort of being able to scale up. You
mentioned artificial intelligence. Is there some technical or
technological solution that you believe exists that you could
take a program like that, that it operated on the basis I
suggested, and suddenly and accurately and with efficiency
scale it up to be able to handle a disaster like this and just
expect the agency to be able to do that?
Ms. KERRIGAN. Well, like I said I think both on my 5
minutes earlier and also in my written testimony that we knew
this was going to be a huge lift for SBA because one is demand;
right? We knew there would be a huge demand for this capital.
And number two, you know, sort of the limited capital that was
available. And I think, Congressman, that the reason why we did
the PPP program was to alleviate; right? To alleviate; right?
So that was sort of the sister program of like, okay, lets get
the financial institutions involved. But they were two
different programs, Congressman. You know, you had one that was
like for, one was very restricted, 8 weeks to use the money as
opposed to EIDL which was 6 months. So.
Mr. BISHOP. Let me interject because I have just got about
30 seconds left, I think.
I think your point is well taken, Ms. Kerrigan, and Dr.
Gerstein, and the other witnesses. And I wish Mr. Whack was on.
I think it would be easier if I could see him. But I think
really what we see is the PPP program being able to bring in
the private sector to leverage the government is what made a
relevant success for PPP. And that was not without frustration
either.
Ms. KERRIGAN. Exactly.
Mr. BISHOP. And so I think it would probably be helpful to
decipher what lessons we should be learning as opposed to just
expressing frustration and leveling it all at the door of the
SBA.
Madam Chairman, of course, my time is expired. Thank you,
Ma' am.
Chairwoman VELAZQUEZ. Thank you, Mr. Bishop.
Let me just say, I welcome you for using the Committee
room, and I also want to thank the cleaning crew who will now
have to go into the room and disinfect. I also want to
recognize that many small firms are able to join us remotely to
testify without undue costs for travel, and I am glad we are
able to facilitate a discussion without burdening small
employers.
With that, let me recognize Mr. Evans from Pennsylvania.
You are recognized for 5 minutes.
Mr. EVANS. Thank you, Madam Chair, again, as usual.
When the pandemic hit, business across the country were
devasted financially, especially African American home
businesses which declined 41 percent from February to April,
the most of any racial group. As a comparison, White-owned
businesses declined only 17 percent. Many Philadelphia small
businesses have been struggling to make ends meet, which is why
the Small Business Administration Economic Injury Disaster Loan
is such a lifeline. Unfortunately, many of my constituents,
including Mr. Whack, have been denied the EIDL loans because of
unsatisfactory credit scores.
Now, Mr. Whack, I am going to ask you three questions based
on my time.
Mr. Whack, what was your reaction when you received your
denial letter from the SBA? Did SBA provide you any further
details on your denial such as minimal credit score required?
And then the CARES Act, Congress indicated that the SBA would
use the application credit score or alternative methods to
determine that applicant's ability to repay. Did SBA indicate
that when it reviewed your application it used methods other
than the credit score, Mr. Whack?
Mr. WHACK. Can you hear me, Congressman?
Mr. EVANS. Yes.
Mr. WHACK. Part of what I have been [inaudible] long wait
but when I finally did get a letter there was no other reason
other than the unsatisfactory credit report, nor was there any
way in that letter that I could have addressed that. I mean,
how about if there was something in my credit history that I
could have corrected or explained or whatever? It was just like
something I thoroughly did not anticipate, and other than
contacting your office I really had no alternatives. I mean,
what was I supposed to do?
Mr. EVANS. So they did not tell you in the CARES Act
Congress indicated that SBA may use an applicant credit score
alternative method. They did not say that to you; right?
Mr. WHACK. I have never heard that. It was not stated, and
I pay very close attention to the news, CNN, MSNBC, and other
printed material, and I was following this to see that when I
was going to apply I had everything that I needed to do this
properly and I was just unprepared for this. That is the best
way to put it to you. I had no notion that they were going to
use your credit score as a basis for accepting or denying an
applicant alone.
Mr. EVANS. Mr. Whack, can you explain all the costs you are
now paying yourself including unreimbursement from pharmacy
benefits, when patients cannot afford their prescription?
Mr. WHACK. As I stated earlier, it is particularly bad
because pharmacy is such a difficult field now in terms of the
HMOs, in terms of you need an inventory which means you go to a
wholesaler. The wholesalers now are getting, they are
ratcheting down. I mean, my competitor, CVS, Rite-Aid, they do
not have wholesalers. See, I go to a middle person to purchase
prescription drugs. Rite-Aid, CVS, they have their own
warehouse. They go directly to Medco or SmithKline or whomever.
They bypass this. And it has put me through a tremendous stress
because now the wholesalers, when you fall behind in this
industry, they put you on COD. Can you imagine trying to be COD
with 1 week's invoices could be like $16,000, $18,000, $20,000?
That is particularly stressful, and I have no real alternatives
to deal with this. I mean, the wholesalers who supply us with
the things we need to do our job are understanding but they are
in business after all. They are not going to continue to extend
courtesy or forbearance for any great length of time. That is
the other part of my anxiety. I do not know at what point
someone is going to call and say, listen, this is it. You
cannot order anymore. What am I supposed to do then?
Mr. EVANS. Real quick I need to, Ms. Sexton, you applied
for the EIDL loan of SBA and received much less than you
requested. Did the SBA explain why you received a lesser
amount?
Ms. SEXTON. Absolutely not. No explanations were given. You
are literally just put in a position where you accept the
amount and that is that. Yeah, it is a real problem.
Mr. EVANS. I yield back, Madam Chairperson. I thank you,
Madam Chairperson for your leadership on small businesses and
everything you have done. So wherever you want to be, I am
going to be there.
Chairwoman VELAZQUEZ. Thank you. Thank you.
Let me again call on Dr. Joyce from Pennsylvania. Is he on?
Okay. Now we recognize the gentleman form Illinois, Mr.
Schneider.
Mr. SCHNEIDER. Thank you, Madam Chairwoman. And I want to
thank the witnesses for sharing your perspectives and
experiences. This is obviously a very difficult time for
everyone but for small businesses in particular as the
witnesses have highlighted so well today, the anxiety of trying
to keep your doors open, trying to figure out how you are going
to just make it through this and to overlay that as you have so
eloquently shared with the uncertainty, it was wonderful.
As you have attested very well, the SBA's Economic Injury
Disaster Loan, the EIDL program is a vital lifeline for
businesses in a crisis. It has been in the past and it should
have been that during this COVID pandemic. But it only works if
the SBA gets the money out the door. The program can be useful
for businesses in planning for long-term future in the midst of
a crisis and it is necessary and should have happened that we
give these owners the information that they need like the
status of their loan application, when they can get the money
they are counting on, and allow them to make the difficult
decisions if money is not going to be available.
More than a month ago I wrote a letter with Chairwoman
Velazquez joined by 100 members of the House to the SBA
outlining our concerns with the EIDL program, calling for the
SBA to create an application queue for new applicants and to
provide the current applicants an update on their loan status.
Unfortunately, these issues still remain unaddressed.
Dr. Gerstein, I so appreciate you sharing your voice as a
small business owner from our community here in Illinois, and I
am glad that small business webinars that I and my team
organized helped navigate the process and that our caseworkers
could be a resource to you. But the detailed timeline you laid
out, the long periods of no information from the SBA was not
unique and was incredibly frustrating. I felt badly for what
you were facing, and as you and I talked about we saw it with
so many other businesses around our district. I cannot imagine
what it was like living through this time as a business owner.
As you have said and said very well, uncertainty kills
businesses. Without updating the information on loan status,
contrary to being a resource, the EIDL program, the way it was
administered became a hindrance towards achieving long-term
planning because business owners just did not know what they
could rely upon.
So if you would, please, can you just give two issues from
your experience? As you were working through the process, you
were also navigating the world uncertainty that comes from
operating a business during a pandemic. How did the lack of
information hamper your ability to make the long-term plans for
your business?
Dr. GERSTEIN. Well, it paralyzed us, quite frankly. I did
not know, going through this process the initial description
was 3 weeks and then 5 to 7 days that you would receive the
income. And after 3 weeks and then 4 weeks, we just did not
know what to do or if I needed to look for capital elsewhere or
not, would that have been a waste of time? You know, and then I
was behind the line of all the people who went that different
avenue. So it was quite paralyzing. And I was really kind of
mired with the SBA and just at their beckon call to see what
was going to happen.
Mr. SCHNEIDER. And Mr. Whack, Ms. Sexton, was your
experience similar?
Mr. WHACK. Can you hear me?
Mr. SCHNEIDER. I can.
Mr. WHACK. Okay. My experience was very similar, and I
would best characterize it as traumatic. I mean, I have been on
pins and needles trying to keep things afloat, keep going, and
hoping that I would get an answer. And when I got the answer,
well, it was no, but it was just so vague and such a strange
response I just was not ready for this.
Mr. SCHNEIDER. And I am sorry; I only have a minute left.
So Ms. Sexton, you laid it out very beautifully in your written
testimony about how much stress this was. Is it still
stressful?
Ms. SEXTON. Yeah, I mean, of course. Of course. I mean, I
have to, I am literally, I have to close my largest location
and that is going to take out two-thirds of my income. I mean,
two-thirds of my business that I created up to 4 years of
busting and making that happen.
Mr. SCHNEIDER. And Dr. Gerstein, you know, the other thing
we talked about is this arbitrary cap at $150,000. How has that
impacted your planning for the future?
Dr. GERSTEIN. At this point now I am looking at alternative
aspects for capital. You know, I did send a letter with
documentation to the SBA. I am still to this day waiting to
hear from them and see if I am going to be granted more income.
But now I have to look at different programs through banks and
other aspects in order to try to just keep us going until we
get back to normal.
Mr. SCHNEIDER. Got it.
And my time is expired. I would ask, Madam Chairwoman as we
proceed in this, one of the things I think we also have to
explore is why did the SBA think it was prudent to not disclose
the information about changing policies? Why did they not give
an alert that we were running behind? The greatest frustration
sitting at an airport is when they do not tell you why your
plane is delayed. That is an inconvenience. How that was
delayed and these other things is devasting for these
businesses.
Chairwoman VELAZQUEZ. That is why it is so important that
we have them come before the Committee, and we expect for them
to comply with our report.
Mr. SCHNEIDER. I look forward to that.
Chairwoman VELAZQUEZ. The gentleman's time has expired, and
now we are going to recognize Dr. Joyce from Pennsylvania. I
believe he is on the phone.
Dr. Joyce?
Now we will recognize the gentleman from New York, Mr.
Espaillat for 5 minutes.
Mr. ESPAILLAT. Thank you, Madam Chair. Let me thank you for
the great work, the lifesaving work that you are doing as the
Committee leader. When I testified before the Committee, as a
member of the Committee, I said that small businesses were mad
as hell. I was mad as hell. I am sorry to report to you, Madam
Chair, that they are still mad as hell.
The PPP program originally was a disaster. You did great
work, Madam Chair, in carving out those $60 billion so that the
money will go to CDFIs, credit unions, and local banks which I
think have a longstanding relationship with small businesses.
But we saw how the traditional banks favor their perceived
customers. And some of them have to shamefully return the money
back. And so this $60 billion that you allotted was very
helpful. However, it is not enough. And of course, you know,
now we see how this credit score business is being introduced.
If you have A+ credit, if you can meet payroll, if you have
liquidity and you have access capital, the bank comes to you.
You do not need to go to the bank. If you go to the bank when
your credit is hurting, when you are striving, when you are
hurting to make payroll and just squeezing by, when you have no
money to expand and you have very little collateral, that is
when you go to the bank. And so if the bank is shutting you out
then, then we are in trouble.
Now, I know that we are going to need to do far more with
small businesses, Madam Chair, and I know that your heart is in
the right place. I work with Chef Kwame, who is an
internationally acclaimed chef based in D.C. but is originally
from the Bronx, from Webster Avenue in the Bronx. He has won
the James Beard Award, the most prestigious award for a chief.
He is a young guy, I believe right under 30 years old, and he
has an independent group association of restaurants.
Restaurants which in many cases define the character and the
reputation and the personality of a neighborhood. We all go to
a particular restaurant in Harlem, East Harlem, Washington
Heights, in Red Hook, Madam Chair, your neighborhood, across
the country because they define those neighborhoods. They are
hurting, and these businesses are marginal businesses that we
work our profit, you know, it is very tight to begin with. In
fact, most of them just make their money at the bar. So I think
that we are going to allot a specific amount of money to
restaurants so that we can save them. And I think there are
several businesses, areas of businesses where we are going to
have to be laser-focused to rescue. I think the Independent
Restaurant Association, which has a great number of very good
restaurants and that provides thousands of jobs to people from
all over the country, we are going to need to really help out
and allot some specific money to them so they will be able to
open. Most of them are going to open and they are going to do
it on the sidewalk, outside cafe and the streets are going to
be converted. But no one is going to rush back to a crowded
restaurant, so their income is going to be limited. And
unfortunately, unless we help them, many of them will close,
and as a result we will lose hundreds of thousands of jobs. So
I want to thank Chef Kwame who is a young rising star. He is
right there at The Wharf in Washington, D.C., Kith and Kin. And
so he is like a guy that is leading the movement for that
business. And there are other businesses that I think face the
same kind of challenges.
So Madam Chair, we are going to have to go back to the
drawing board and really do better for small businesses. And
thank you for your work, and I yield back the remaining part of
my time.
Chairwoman VELAZQUEZ. The gentleman yields back.
With that we are coming to the end of this hearing.
I want to take this opportunity to thank all of the Members
for participating in such an important oversight hearing. I
also want to thank all of our witnesses for their testimony and
for offering the main street view of the SBA EIDL program.
By sharing your experiences with us today, we will be able
to conduct more effective oversight and continue to optimize
the EIDL program. We have heard some rather troubling issues in
your testimony, and I assure you we will be following up with
SBA on each one.
I ask unanimous consent that Members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
If there is no further business before the Committee, we
are adjourned. Thank you.
[Whereupon, at 2:49 p.m., the Committee was adjourned.]
A P P E N D I X
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