[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                   EXAMINING THE ROLE OF COMMUNITY 
                 DEVELOPMENT FINANCIAL INSTITUTIONS AND 
                 MINORITY DEPOSITORY INSTITUTIONS IN 
                 SMALL BUSINESS LENDING

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

                                HEARING

                               BEFORE THE

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              MAY 18, 2021

                               __________


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 117-013
             Available via the GPO Website: www.govinfo.gov
                   
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
44-565                      WASHINGTON : 2021                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                          JARED GOLDEN, Maine
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                         KWEISI MFUME, Maryland
                        DEAN PHILLIPS, Minnesota
                         MARIE NEWMAN, Illinois
                       CAROLYN BOURDEAUX, Georgia
                         TROY CARTER, Louisiana
                          JUDY CHU, California
                       DWIGHT EVANS, Pennsylvania
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                          ANDY KIM, New Jersey
                         ANGIE CRAIG, Minnesota
              BLAINE LUETKEMEYER, Missouri, Ranking Member
                         ROGER WILLIAMS, Texas
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        DAN MEUSER, Pennsylvania
                        CLAUDIA TENNEY, New York
                       ANDREW GARBARINO, New York
                         YOUNG KIM, California
                         BETH VAN DUYNE, Texas
                         BYRON DONALDS, Florida
                         MARIA SALAZAR, Florida
                      SCOTT FITZGERALD, Wisconsin

                 Melissa Jung, Majority Staff Director
            Ellen Harrington, Majority Deputy Staff Director
                     David Planning, Staff Director
                            
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Sharice Davids..............................................     1
Hon. Dan Meuser..................................................     3

                               WITNESSES

Ms. Aissatou Barry-Fall, President & CEO, Lower East Side 
  People's Federal Credit Union, New York, NY....................     5
Mr. Everett Sands, Founder & CEO, Lendistry, Brea, CA............     7
Mr. Robert James II, President, Carver Development CDE, Chairman, 
  National Bankers Association, Savannah, GA.....................     9
Mr. Walter L. Davis, Founder, Peachtree Providence Partners 
  Holding Company, Charlotte, NC.................................    10

                                APPENDIX

Prepared Statements:
    Ms. Aissatou Barry-Fall, President & CEO, Lower East Side 
      People's Federal Credit Union, New York, NY................    26
    Mr. Everett Sands, Founder & CEO, Lendistry, Brea, CA........    32
    Mr. Robert James II, President, Carver Development CDE, 
      Chairman, National Bankers Association, Savannah, GA.......    41
    Mr. Walter L. Davis, Founder, Peachtree Providence Partners 
      Holding Company, Charlotte, NC.............................    49
Question and Answer for the Record:
    Question from Hon. Luetkemeyer to Mr. Robert James II and 
      Answer from Mr. Robert James II............................    53
Additional Material for the Record:
    Credit Union National Association - CUNA.....................    54
    National Association of Federally-Insured Credit Unions - 
      NAFCU......................................................    56

 
                    EXAMINING THE ROLE OF COMMUNITY 
DEVELOPMENT FINANCIAL INSTITUTIONS AND MINORITY DEPOSITORY INSTITUTIONS 
                       IN SMALL BUSINESS LENDING

                              ----------                              


                         TUESDAY, MAY 18, 2021

              House of Representatives,    
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                   Tax, and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building and via Zoom, Hon. 
Sharice Davids [chairwoman of the Subcommittee] presiding.
    Present: Representatives Davids, Newman, Chu, Evans, Mr. 
Kim, Bourdeaux, Meuser, Van Duyne, and Donalds.
    Also Present: Representative Luetkemeyer.
    Chairwoman DAVIDS. Good morning, everyone. I call this 
hearing to order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    Let me begin by saying that standing House and Committee 
rules and practice will continue to apply during hybrid 
proceedings. All Members are reminded that they are expected to 
adhere to these standing rules including decorum.
    House regulations require Members to be visible through a 
video connection throughout the proceeding, so please keep your 
cameras on. Also, please remember to remain muted until you are 
recognized to minimize the background noise. If you participate 
in another proceeding, please exit this one and log back in 
later.
    In the event a Member encounters technical issues that 
prevent them from being recognized for their questioning, I 
will move to the next available Member of the same party and I 
will recognize that Member at the next appropriate time slot 
provided they have returned to the proceeding.
    For those Members physically present in the Committee room 
today, we will continue to wear masks and socially distance 
while the Chairwoman and Ranking Member work with the office of 
the attending physician on updated guidelines and procedures. 
Members and staff are expected to wear masks while in the 
hearing. With that said, Members will be allowed to briefly 
remove their masks when recognized by the Chair for statement 
and questions. I know we all look forward to returning to 
normal but appreciate everyone's patience while we prioritize 
the health and safety of our staff and each other.
    Access to capital is the lifeblood of American small 
business. When small firms obtain adequate funding, they can 
grow their business, create jobs, and bolster the overall 
economy. Unfortunately, accessing capital is the single 
greatest challenge facing most entrepreneurs. This is 
especially true for the underserved groups like women, 
minorities, and folk who do not have the same opportunities to 
access funding as their peers.
    Businesses owned by women and people of color who obtain 
loans often receive less money and pay higher interest rates. 
Fortunately, there are institutions working to close this 
lending gap. Community development financial institutions 
(CDFI) and minority depository institutions (MDI) operate to 
get money to entrepreneurs traditionally ignored by big banks. 
CDFIs provide a range of financial products and services on a 
fair and transparent basis in economically distressed markets 
such as mortgage financing, flexible underwriting, and loans 
and investments to small businesses in low-income areas.
    MDIs are depository institutions where 51 percent or more 
of the stock is owned by minority individuals, including Black 
Americans, Asian Americans, Hispanic Americans, and Native 
Americans. As of December 31, 2020, there are 142 MDIs ensured 
by the FDIC. MDIs better serve borrowers who live in low and 
moderate income or LMI census tracts.
    Over the past year, we have seen a wealth of evidence 
showcasing the power of these institutions in reaching 
undeserved groups. The pandemic highlighted and exacerbated the 
deep inequalities present in the small business sector. In 
2020, Black, Latino, and Asian Americans experienced drops in 
business ownership rates much higher than their White peers. 
These same groups also had less access to federal relief 
programs, like the Paycheck Protection Program (PPP) due to 
their lack of an account with a big bank.
    Recognizing this inequality in capital access, I and other 
Members of this Committee worked to empower CDFIs and MDIs to 
get emergency relief to these communities. We passed set-asides 
and multiple bills to appropriate funds so that community 
lending institutions, including CDFIs, could participate in the 
PPP on an equal footing with other lenders. We crafted these 
set-asides to maximize PPP lending in traditionally underserved 
business communities and we found that they were effective.
    During the COVID-19 pandemic, small businesses reported the 
greatest levels of satisfaction with CDFIs and small banks. 
SBA's data also shows that CDFIs were best able to reach 
underserved small businesses. CDFIs were the only type of 
lender that performed above program average when it came to the 
percentage of loans less than $150,000. The percentage of loans 
made in low or moderate income areas and the percent of loans 
made in rural areas. The pandemic taught us a critical lesson 
in the power of community financial institutions, to reach 
communities that other lenders neglect.
    Moving forward, we must examine the SBA's programs that 
empower CDFIs and MDIs to find ways to improve them. For 
example, efforts like the Community Advantage Loan Program, the 
504 or CDC Loan Guaranty Program, the Microloan Program has 
also proven effective in helping CDFIs and MDIs get capital to 
underserved communities.
    Today, I would like us to look at what programmatic changes 
can be made and what legislation we can pass to help improve 
the ability of these mission-based lenders to reach their 
target markets. As this Congress and the administration work 
toward achieving an equitable recovery for everyone, we must 
fully harness CDFIs and MDIs to reach this goal.
    I will now yield to the Ranking Member for his opening 
statement.
    Mr. MEUSER. Well, I thank you, Madam Chair. Good morning to 
all. And I thank you for holding this important hearing to 
explore the topic of access to capital for small businesses and 
how community financial development institutions and minority 
depository institutions assist the nation's underserved small 
businesses. Access to capital is a true driver of whether a 
small business startup or entrepreneur can sustain business 
operations. The ability to obtain capital can be the difference 
between expanding and ceasing operations.
    Unfortunately, when restrictions and shutdown measures were 
mandated on small businesses by state and local governments to 
prevent the COVID-19 from spreading, traditional financing 
options quickly became even more limited. Instantly, small 
businesses were faced with very devastating challenges. As a 
response, Congress created numerous relief programs focused on 
providing capital to small businesses and their employees.
    To create efficiencies and develop capital in a swift 
manner, the Paycheck Protection Program replicated the strong 
private lender model used within the SBA's 7(a) Loan Program. 
Private sector lenders responded quickly and assisted small 
businesses through the emergency period and a total of over 
5,000 private sector lenders participated in the PPP.
    To reach underserved businesses in urban and rural areas, 
including minority-owned businesses, CDFIs and MDIs were 
welcomed into the program as well. Beyond acting as important 
lenders and intermediaries, CDFIs and MDIs were categorized as 
community financial lenders and were on the frontlines 
assisting small businesses throughout the pandemic. From when 
the program opened in April 2020 through the conclusion of the 
first round in August 2020, over 114,000 PPP loans were made by 
308 CDFIs for a total of $7.5 billion. Quite a bit. Likewise, 
approximately 175 MDIs played an important role in PPP during 
the same time period by making 123,000 PPP loans for $10 
billion.
    Fast-forward to today, and CDFIs and MDIs are still 
actively participating in the PPP program. Aside from providing 
critical access to capital, CDFIs and MDIs were answering 
questions, providing technical assistance, and responding to 
the needs of the nation's smallest firms and organizations and 
they were quite active in Pennsylvania, which was very 
appreciated. I would also like to thank all the lenders that 
participated in PPP, including the nation's CDFIs and MDIs for 
assisting small businesses through these somewhat dark days.
    But more work needs to be done. It is important for 
Congress to examine the role these lenders had over the last 
year. Moreover, Members of Congress must also examine the 
relief options used during COVID-19 to measure programs' 
efficiencies and overall effectiveness. Hearings like this one 
will help guide us as we explore numerous capital access 
issues, including the most efficient ways to deliver credit to 
small businesses. We learned a lot during this emergency 
period. We should use this information to continue to refine 
and sharpen all of the existing traditional tools available 
within the federal government.
    I would like to thank all the witnesses for joining us 
today. I look forward to the conversation.
    Madam Chair, thank you for calling his hearing and I yield 
back.
    Chairwoman DAVIDS. Thank you. The gentleman yields back.
    I would like to take a moment to explain how the hearing 
will proceed. Each witness will have 5 minutes to provide a 
statement and each Committee Member will have 5 minutes for 
questions. Please ensure that your microphone is on when you 
begin speaking and that you return to mute when you are 
finished.
    With that, I would like to introduce all of our witnesses.
    Our first witness is Ms. Aissatou Barry-Fall, the President 
and CEO of the Lower East Side People's Federal Credit Union. A 
leader in the community development credit union movement and 
one of the earliest institutions to obtain CDFI certification 
from the Treasury. Since its founding, they have provided vital 
financial services and community development investments in 
low-income, immigrant, and underserved communities in New York 
City. Ms. Barry-Fall began her career as a teller almost 30 
years ago. Welcome, Ms. Barry-Fall.
    Our second witness is Mr. Everett Sands. Mr. Sands is the 
Founder and CEO of Lendistry, a minority-led and technology-
enabled small business lender with CDFI certification and one 
of the largest lenders in SBA's Community Advantage Program. 
Lendistry is also a Member of the Responsible Business Lending 
Coalition, a leading advocacy group for transparency and 
fairness in the lending process. He has over 20 years in 
national community banking and began his career working at two 
MDIs. Welcome, Mr. Sands.
    Our third witness is Mr. Robert James II. Mr. James is the 
President of Carver Development CDE, an affiliate of Carver 
State Bank in Savannah, Georgia, one of the oldest Black-owned 
banks in the United States. He is also the Chairman of the 
National Bankers Association, the leading trade organization 
for the country's minority depository institutions. An attorney 
by trade, he has spearheaded numerous initiatives to bring 
private and public investments to underserved communities. 
Welcome, Mr. James.
    I would now like to yield to our Ranking Member, Mr. 
Meuser, to introduce our final witness.
    Mr. MEUSER. Thank you, Madam Chair.
    Our next witness, Walter Davis. Mr. Davis is the Founding 
Member of Peachtree Providence Partners Holding Company with 
locations in Charlotte, North Carolina and Atlanta, Georgia. 
Peachtree Providence Partners was formed in 2014 and 
specializes in advisory and consulting services, as well as 
financial solutions. Prior to forming Peachtree Providence 
Partners, Mr. Davis was Vice Chairman, Chief Executive Officer, 
and Founder of CertusBank, and before that he was managing 
partner of Integrated Capital Strategies. Mr. Davis has also 
held executive level roles with Wachovia Corporation which is 
now Wells Fargo and Bank of America. Along with numerous board, 
trustee, and academic positions, Mr. Davis is an advisor on 
opportunity zones and was Chair of Vice President Pence's 
Economic Inclusion Task Force. Mr. Davis has a degree from the 
University of South Carolina and the University of North 
Carolina Chapel Hill. Mr. Davis, I would like to welcome you to 
the Subcommittee today and I am looking forward, we all are, to 
your thoughts and ideas.
    Thank you to all of the witnesses for joining us, and I 
yield back.
    Chairwoman DAVIDS. Thank you for doing that introduction.
    Ms. Barry-Fall, you are now recognized for 5 minutes.
    I believe you might be muted still.

STATEMENTS OF AISSATOU BARRY-FALL, PRESIDENT & CEO, LOWER EAST 
 SIDE PEOPLE'S FEDERAL CREDIT UNION; EVERETT SANDS, FOUNDER & 
CEO, LENDISTRY; ROBERT JAMES II, PRESIDENT, CARVER DEVELOPMENT 
 CDE, CHAIRMAN, NATIONAL BANKERS ASSOCIATION; WALTER L. DAVIS, 
     FOUNDER, PEACHTREE PROVIDENCE PARTNERS HOLDING COMPANY

                STATEMENT OF AISSATOU BARRY-FALL

    Ms. BARRY-FALL. Can you hear me now?
    Chairwoman DAVIDS. There we go.
    Ms. BARRY-FALL. Thank you.
    Chairwoman Davids, Ranking Member Meuser, and Members of 
the Subcommittee, thank you for inviting me to testify at 
today's hearing.
    I am the CEO of the Lower East Side People's Federal Credit 
Union, a not-for-profit community development financial 
institution and minority designated credit union located in New 
York City. We are also a proud Member of Inclusiv, a national 
network of nearly 400 community development financial 
institution and minority-designated credit union located in New 
York City. We are also a proud Member of Inclusiv, a national 
network of nearly 400 community development credit unions. 
Together they serve 14 million predominantly low-income and 
minority communities and manage $190 billion in community-
controlled assets.
    During the pandemic, while working to help our Members 
access stimulus payments, deal with financial insecurity and 
access emergency loans, community development credit unions 
also mobilized to become a critical conduit to getting the 
Paycheck Protection Program out to minority small and micro 
businesses.
    Our credit union was established in 1986 as a response to 
the closure of the last bank branch serving the Lower East Side 
of Manhattan. Thirty-five years later, we continue to play the 
same critical role as the only regulated CDFI in our community. 
We now manage around $90 million in assets and 9,000 people 
through three community institutions.
    Our loan portfolio has more than $22 million in mortgages, 
over $20 million in loans to low-income housing cooperatives, 
and $16 million in Paycheck Protection Program loans.
    Like other community development credit unions, we are the 
financial first responders. We are there when disasters strike. 
We were first to open in the aftermath of 9/11. Last year, we 
did it again. In a time of crisis, we inevitably see increased 
demand on our services.
    Our experience with PPP was in itself a journey. We could 
not participate in the first round as the money ran out even 
before we could get on the SBA platform. In the second round, 
we faced some significant logistic challenges but our team 
quickly gained the expertise needed to ramp up our lending. We 
now have a strong pipeline that we hope to continue processing 
as long as the $9 billion set-aside is still available.
    Most of our business borrowers are micro and very small 
entrepreneurs. They come to us frustrated by their negative 
experiences with other financial institutions.
    Our average PPP loan is around $30,000. Our median loan is 
$21,000. The largest loan we made was $750,000 and the smallest 
was for only $220. Yes, $220.
    Our role is to serve those that other lenders do not. They 
are the minority businesses that would have been left behind 
were it not for the work of the CDFIs and MDIs.
    Our numbers are consistent with what Inclusiv has been 
tracking from its network. In 2020, community development 
credit unions originated $1.8 billion in PPP loans. This number 
is likely to be bigger this year. In fact, community based 
lenders collectively have deployed more than $22 billion in PPP 
loans so far. To finish strong, we ask SBA to share daily 
updates with community lenders on how much funding is 
available.
    Moving forward, I would ask you to take advantage of this 
moment to create a strong framework to serve minority 
businesses. CDFI credit unions are a key to help these 
businesses, not just survive but to grow and thrive.
    I propose the following:
    Open the SBA Community Advantage Program to CDFI credit 
unions.
    Improve the traditional 7(a) SBA program. The loan 
guarantee process is cumbersome to borrowers and challenging 
for community lenders.
    SBA should streamline approval for loans under $150,000.
    Provide resources to support technical assistance and 
training to ensure entrepreneurs can really succeed. We spend a 
significant portion of our time helping borrowers navigate the 
lending process.
    Keep capital flowing. We are encouraged by the inclusion of 
$12 billion for the CDFIs and MDIs in the COVID relief bill and 
we plan to access all those opportunities. We applied for a $3 
million grant under the CDFI Fund Rapid Response Program. This 
capital infusion will enable us to continue mobilizing funds to 
fill our lending.
    We urge the CDFI Fund to move forward with that review 
process quickly and to prioritize on-the-ground CDFIs that are 
working directly with consumers, homeowners, and businesses.
    We intend to apply for secondary capital through the U.S. 
Treasury's Emergency Capital Investment Program (ECIP). We 
encourage Treasury to make this program as flexible as possible 
and to ensure that the information requested in those 
applications is in line with the NCUA review. We also urge NCUA 
to make their reviews consistent and expeditious.
    I thank you again for this opportunity and look forward to 
answering your questions.
    Chairwoman DAVIDS. Thank you, Ms. Barry-Fall.
    Mr. Sands, you are now recognized for 5 minutes.

                   STATEMENT OF EVERETT SANDS

    Mr. SANDS. Thank you. Good morning, Chair Davids, Ranking 
Member Meuser, Ranking Member Williams. Thank you calling a 
hearing on The Role of CDFIs and MDIs in Small Business Lending 
and for inviting me to testify.
    My name is Everett K. Sands, and I have more than 20 years 
of experience in lending at MDIs, national banks, and at the 
only fintech CDFI, Lendistry.
    For the past 5 years, as founder and CEO of Lendistry, my 
focus has been on responsible lending to underserved small 
businesses, and particularly those owned by minorities, women, 
veterans, and people in rural areas.
    Lendistry is also a Community Development Entity (CDE), and 
a Member of the Federal Home Loan Bank of San Francisco, and a 
SBA lender.
    Lendistry ranks second nationwide in SBA Community 
Advantage lending, which ranges from $50,000 and $250,000, and 
more than 60 percent of Lendistry's total outstanding principal 
loan balance is with minority and women-owned borrowers, and 70 
percent to underserved small businesses.
    Lendistry's intentional focus on these businesses and our 
ability to efficiently process high volumes of applications, 
have enabled us to make an impact during this period of urgent 
need. Over the past 13 months, Lendistry has been the primary 
point of contact in connecting more than a quarter of a million 
affected small businesses with $3.2 billion in loans and grants 
and we aspire to grow to at least $5 billion by year end.
    In addition to providing PPP loans nationwide, including at 
least one county represented by every Member of this 
Subcommittee, Lendistry has served as the administrator for 
COVID relief grant programs offered by the states of California 
and Pennsylvania, and we have provided businesses in every 
county of those states with critically needed equity capital.
    My message today is that the single most effective way for 
Congress and the Federal Reserve to substantially expand 
capital access to small and underserved businesses is to focus 
on making significantly more capital available to CDFIs and 
MDIs.
    One unmistakable lesson of the determined economic relief 
efforts led by Congress over the past year in response to COVID 
is that small and underserved businesses are far and away more 
successful in accessing capital from CDFIs and MDIs than from 
other sources.
    Furthermore, as a signatory to the Small Business 
Borrower's Bill of Rights, we at Lendistry see that the lesson 
also contain a market-oriented solution to the predatory 
lending problem, with the potential for greater supply of 
responsibly-priced capital channeled through CDFIs and MDIs. 
Yet, paradoxically, CDFIs and MDIs face more barriers to 
gaining an adequate supply of capital to deploy than other 
federally-regulated and federally-certified financial 
institutions.
    In short, CDFIs and MDIs are essential, yet underutilized, 
pieces of the small business funding infrastructure.
    The stakes in addressing this paradox are enormous. 
Disparity in access to capital on responsible terms is a 
critical hurdle for small businesses, both in powering the 
nation's economic and jobs recovery and in narrowing the racial 
wealth gap.
    The capital access landscape many small businesses must 
traverse as they grow resembles the desert where the lifeblood 
of responsibly-priced capital is scarce. Worse, it is a desert 
that is made almost impossibly steep by the prevalence of 
predatory lenders that have filled a void left by two decades 
of bank consolidation. After a year of COVID relief, there is 
clear and compelling evidence that measures making capital 
available to CDFIs and MDIs will transform this steep desert 
that small businesses must cross on their path to growth and 
into a more fertile and flatter playing field.
    Congress and the Federal Reserve already have put in place 
key building blocks for addressing the problem of CDFIs and 
MDIs lacking the capital necessary to be significantly more 
impactful for small businesses. The work to do is relatively 
straightforward.
    Let me summarize three categories of recommendations which 
I have described in greater detail in my written testimony.
    First, leverage several key building blocks that already 
have been established by Congress and the Federal Reserve by 
establishing mechanisms that are exactly analogous to ones that 
have already proven to be effective in opening the flow of 
capital to CDFIs and MDIs. My recommendations in this regard 
are making greater use of the Paycheck Protection Program 
liquidity facilities in all SBA programs; expanding SBA 
community advantage in three dimensions--length, loan amount 
and geographic reach; and making greater use of the Federal 
Home Loan Bank and programs that guarantee loans, such as the 
recently renewed State Small Business Credit Initiative.
    The second category of recommended actions is optimizing 
the complementary nature of traditional banks, on one hand, and 
CDFIs and MDIs, on the other, for the benefit of small 
businesses. My recommendations in this regard focus on 
enhancing the incentives for traditional banks to partner with 
CDFIs and MDIs.
    And the third area of recommendation is to create an office 
within SBA dedicated to supporting the efforts of CDFIs and 
MDIs as small business lenders.
    Thank you again to the Subcommittee and the staff for the 
opportunity to provide my perspectives and recommendations. I 
look forward to engaging you further in response to your 
questions.
    Chairwoman DAVIDS. Thank you, Mr. Sands.
    Mr. James, you are now recognized for 5 minutes.

                  STATEMENT OF ROBERT JAMES II

    Mr. JAMES. Thank you, Chairwoman Davids, Ranking Member 
Meuser, Chairwoman Velazquez and Members of the Subcommittee. 
Good morning and thank you for this opportunity to testify on 
the role of CDFIs and MDIs in small business lending. It gives 
me great hope that one of this Subcommittee's first hearings of 
the 117th Congress is aimed at shining a light on this critical 
issue.
    My name is Robert James II, and I am president of Carver 
Development CDE, an affiliate of Carter State Bank in Savannah, 
Georgia. I am also Chairman of the National Bankers Association 
(NBA). The NBA is the leading trade association for the 
country's Minority Depository Institutions. Our mission is to 
advocate for the nation's MDIs on all legislative and 
regulatory matters concerning and affecting our Members, as 
well as the communities we serve.
    Many of our Member institutions are also CDFIs, and many 
are banks of choice for consumers and businesses who are 
underserved by traditional banks. NBA Members are on the 
frontlines, reducing the economic hardship in minority 
communities, which historically are the most vulnerable during 
any slowdown and have been hit hardest by this pandemic.
    The House Small Business Committee and Chairwoman Velazquez 
have been instrumental in the inclusion of several provisions 
in multiple relief packages adopted during the course of the 
pandemic that ensure that MDIs and the small businesses and 
individuals that we serve are not forgotten during this 
national emergency.
    The creation of the Emergency Capital Investment Program 
and the $3 billion plus up of the CDFI Fund will allow 
institutions like those within the NBA to make more credit 
available to individuals and small businesses in LMI 
communities. The NBA applauds the Congress for the adopting 
these two important capital measures and we look forward to 
working with you on other measures that will help the 
communities we serve.
    It is important to note that 70 percent of minorities do 
not have a bank branch in their neighborhood and 94 percent of 
Black small businesses are the sole proprietors that are 
typically underbanked or unbanked.
    Given the challenges faced by these small businesses, 
especially minority-owned small businesses, it is imperative to 
assess which type of banks are best positioned to provide 
access to capital for these communities. National banks may not 
be fastest in reaching this constituency but were principally 
minority communities that have accounted for 50 percent or more 
of the debts from this pandemic.
    Traditionally, CDFIs and MDIs are critical economic 
development engines in minority and low-income communities, 
particularly due to our trusted relationships. Unfortunately, 
our relatively small scale and underrepresentation in the 
implementation of many of the relief efforts show that more 
intentional inclusion is required in program design. We saw 
this play out during each round of the PPP. Congress devised 
the program as a mechanism to aid small businesses suddenly 
found themselves forced to close during stay-at-home orders, a 
set of conditions that have favored larger businesses, 
including delaying the application of sole proprietorships, and 
program rules not allowing enough time for our MDIs and CDFIs 
to work with very small, under-resourced, minority-owned 
businesses has limited their access.
    In light of the nature of this hearing, the NBA is pleased 
to recommend several potential policy options for 
consideration, including the establishment of an MDI office at 
the SBA which will focus on integrating our institutions as the 
outreach servicing minority small businesses across the 
country.
    A critical component for this office would be a mandate for 
the SBA to preserve and promote minority depository 
institutions by: (1) preserving the number of MDIs; (2) 
providing technical assistance to ensure maximum efficiency in 
program implementation; and (3) promoting and encouraging the 
creation of new MDI partnerships.
    It is very similar to requirements that make regulatory 
agencies currently comply and we believe that these 
requirements of the office ensure that MDI partners are able to 
effectively engage with the SBA.
    Several other options are outlined in my written testimony 
including passage of the Ensuring Diversity Community Banking 
Act, Consumer Credit Enhancements, and Small Business Faith-
Based and Nonprofit Institution Credit Enhancement.
    In conclusion, the MDA applauds the Subcommittee for 
holding this important hearing and supports the Full 
Committee's ongoing efforts to ensure equity for all American 
small businesses. While we commend Congress on its leadership 
to date, much work needs to be done. We continue to support the 
MDI sector as we respond to the credit needs of small 
businesses that our Members [inaudible]. In this regard, the 
NBA and its Member institutions look forward to working closely 
with the Committee and the Subcommittee to find workable 
solutions that ensure minority small businesses ultimately have 
every opportunity to thrive.
    Thank you again for the opportunity to testify. I will be 
pleased to answer any questions.
    Chairwoman DAVIDS. Thank you, Mr. James.
    Mr. Davis, you are now recognized for 5 minutes.

                  STATEMENT OF WALTER L. DAVIS

    Mr. DAVIS. Thank you, Chairwoman Davids, Ranking Member 
Meuser, and Members of the Economic Growth, Tax, and Capital 
Access Subcommittee. It is a pleasure to be with you today.
    I come before you today with extensive senior executive 
leadership experience with some of the nation's largest 
financial institutions, as well as an entrepreneur.
    Specifically, I previously co-founded and served as the 
chief executive officer of the African American founded and 
managed, CertusBank. Having reached the level of more than $2 
billion in assets, CertusBank operated as the largest bank in 
the U.S. founded and managed by African Americans.
    Prior to my work at CertusBank, I served as an executive 
vice president at Wachovia Corporation, which is now Wells 
Fargo Bank. While there, I managed a $70 billion retail credit 
and small business portfolio.
    It is in this context that I would like to share some 
thoughts on the state of CDFIs and MDIs, as well as suggest 
some policies to improve the flow of capital into small 
businesses.
    It is important to note that when we are speaking of CDFIs 
and MDIs, which include Black banks, in the broader context, 
what we are speaking of is our national access to capital and 
financing infrastructure for minority businesses and 
entrepreneurs. Quite often, these enterprises are doing and 
seeking to do business in the places that pose the greatest 
challenges and risks in the marketplace. These markets are 
often at the bottom of the economic ladder and separated 
significantly from the mainstream economy. These are the areas 
that are generally referred to as distressed or underserved 
markets and communities. These areas are reflected in what we 
now designate as opportunity zones, which by the way I had the 
privilege to work closely with Senator Scott and his staff on 
the opportunity zone legislation.
    These communities do not have the same support or capital 
access system as mainstream communities. We admonish them to 
take advantage of what is the core of America, our unparalleled 
capitalist free enterprise system. But what happens when the 
federal government does not ensure that the free enterprise 
system is there for them like it is the mainstream marketplace? 
What happens is this: The disproportionate economic devastation 
that we see in communities persists. And these conditions are 
the bedrock of much of the social dysfunction and yes, racial 
unrest that we are experiencing today.
    No business can grow without access to capital. The role of 
the government in my view is to make certain that the proper 
infrastructure is there to ensure equitable access to capital. 
During the pandemic, The Federal Reserve and Treasury did a 
laudable job working in tandem to make certain large financial 
institutions were able to meet the needs of their large and 
mid-sized clients through mechanisms such as the Commercial 
Paper Funding Facility, the main street Lending Program, and 
the Primary Dealer Credit Facility, among others. In this same 
period, we saw the SBA administer the Payment Protection 
Program and Economic Injury Disaster Relief Loan facilities but 
without the same efficiency. We witnessed once again that Black 
and Brown businesses were shut out of the all-important flow of 
capital during these programs' initial stages.
    Adjustments were made and the calvary was called in to help 
get PPP loans to those most in need. In this instance, the 
calvary consisted of CDFIs and MDIs. CDFIs and MDIs handled the 
bulk of Black and Brown small business relief efforts.
    I would like to say that I am not against the market and 
policy support for our large American businesses. We truly need 
that. I am saying that as a federal government, we must be as 
dedicated to providing for the needs of minority businesses in 
distressed communities.
    Now, for a moment, let's talk about Black banks and their 
role in supporting underserved communities. One hundred years 
ago in 1921, 120 Black-owned banks were in existence across the 
U.S. Twenty years ago, that number had been reduced to 40, and 
today only 19 Black-owned banks remain in operation. One might 
think consolidation and moves to achieve economies of scale 
drove this shrinkage. However, there is only one of these 
institutions that has $1 billion in assets.
    In an economy where there are multiple trillion-dollar 
banks, this is inexcusable. We expect Black-owned Banks to 
serve the ``least of these.'' We need these institutions to be 
strong; however, we need to take a close look at some type of 
infrastructure, investment, and regulatory relief.
    As it relates to solutions, we have talked about the 
Emergency Capital Investment Program. I believe this is a great 
program. However, right now currently the SBA will not allow 
banks to invest capital received from ECIP into SBICs (Small 
Business Investment Corporations). According to the SBA there 
are over 300 SBIC licenses and less than five in the hands of 
Black-owned fund managers.
    Given the dire need of capital in the underserved market 
and particularly, Black communities, a provision should be made 
to allow CDFIs and MDIs to invest in ECIPs without restriction. 
Also, Congress should consider allowing CDFIs and MDIs to take 
in equity capital from opportunity zone investors and in turn 
lend it out to entrepreneurs will allow for more capital flow 
into minority and business communities.
    I can speak more during Q&A about other thoughts but I 
thank you for your time and appreciate you allowing me to 
address you this morning.
    Chairwoman DAVIDS. Thank you, Mr. Davis.
    And thank you to everybody who has testified so far this 
morning. We appreciate everything you have shared with us.
    I am going to start by recognizing myself for 5 minutes.
    Mr. James, in the last few months, we have seen a concerted 
effort from the White House and the SBA to reach the smallest 
of small businesses through the Paycheck Protection Program. As 
they were largely shut out of the program early on, how would 
you evaluate SBA's outreach to the lending community and the 
emphasis on targeting the hardest to reach at this point?
    Mr. JAMES. Thank you for the question, Chairwoman.
    As you know, the role out of the program was a bit rocky. 
In the first round of the program, the SBA was very much 
focused on speed to market and getting capital in the hands of 
small businesses. Unfortunately, there was not really a lot of 
intentionality in the design of the program and so it was very 
difficult for particularly small institutions to access and 
deliver resources to the communities that we serve.
    In addition, in the second round of the PPP program, the 
issues were a little bit better. It was a little smoother. We 
were able to access certain set-aside funding for small 
businesses in the communities we served. But there were issues 
in terms of the rules of the program, in terms of calculations, 
particularly for small sole proprietors and the way that they 
were required to calculate their eligibility. Then, in the 
third round of the program when it rolled out, we received very 
little notice. The program rolled out in early January. We 
received very little notice at our institutions about the 
change of technology platforms and the way that the program 
would be administered. And so that presented some challenges 
because many of our institutions had worked out their own 
process during the first two rounds and then they had to change 
processes with very, very little notice. Then, we had another 
situation where the new administration came in and made a very 
welcomed change to the calculation rules to allow more sole 
proprietors to access capital based on their gross income and 
not their net but that then caused it to slow down again due to 
the rule changes, changes in application forms which again 
impacted the ability to serve those small business customers 
effectively and efficiently.
    So in future programs like this, Chairwoman Davids, I would 
just recommend that we design them on the frontend with a 
little bit more intentionality about how to make the capital 
available to the smallest and hardest to serve businesses and 
our institutions, as well as I am sure the other Members of the 
panel today would be happy to provide this Committee and the 
Congress in the future with very specific suggestions like the 
creation of an MDI office at the SBA which would really improve 
our ability to again make program designs very efficient going 
forward.
    Chairwoman DAVIDS. Thank you.
    Mr. Davis, and this question can be for anyone else on the 
panel who also wants to share. I am curious after your 
testimony, we know that access to capital is a challenge for 
clients of CDFIs and MDIs, but also for the institutions 
themselves. And earlier this year, Treasury announced the 
launch of the Emergency Capital Investment Program (ECIP) to 
provide emergency capital to CDFIs and MDIs.
    I guess I am curious about your ideas about how we ensure 
that Treasury maximizes those benefits of this particular 
program and then also, if you have anything additional about 
the infrastructure needed to support MDIs and that sort of 
thing.
    Mr. DAVIS. Certainly. Thank you for the question, 
Chairwoman.
    The ECIP program I think is a really good idea. It is a 
novel idea. Two percent cost of capital being driven down to 50 
basis points. And sometimes starting at 2-1/2 percent for 
subordinated debt I think is great. The issues that you have to 
think about is that this is for the best of institutions, the 
most well run. There are a lot of weaker institutions that 
serve these communities that need help as well. Tier one 
capital, as we know, is the lifeblood of any financial 
institution, especially a depository institution. And so if we 
think about a business model where these folks are set up to 
serve the poorest of communities, the profitability model is 
going to be a little bit different. And so I think that we can 
enhance this program by taking a look at what are those efforts 
that we can make for those weaker MDIs that are out there? How 
can we support them in a different way? I think that is going 
to be critical from my perspective.
    Chairwoman DAVIDS. Thank you. And I realize that my time 
has now expired.
    I am going to now recognize the Ranking Member, Mr. Meuser 
from Pennsylvania.
    Mr. MEUSER. Thank you, Chairwoman.
    Chairwoman DAVIDS. For 5 minutes.
    Mr. MEUSER. So this is a very important subject and really 
quite intriguing.
    Mr. Davis, I would just like to start with you. How do you 
feel the undeserved small businesses were served by the PPP and 
the EIDL programs via the CDFIs and the MDIs? I mean, in 
general or specifically, how do you feel the programs went?
    Mr. DAVIS. Thank you, Ranking Member Meuser.
    So, in general, I think the program went fine. As it 
relates to the EIDL program, the SBA administered those loans 
directly, and as we know, the SBA is not set up generally to 
make loans directly. So I would sort of think about something a 
little bit different in working through the intermediaries such 
as the MDIs and CDFIs as it relates to that.
    Paycheck Protection Program, I think that worked generally 
well. A lot of feedback that I received from MDIs was two 
things. One was their lack of infrastructure to be able to 
handle the number of requests they had because they were the 
ones really serving those that had been left out and those most 
in need.
    Number two, they talked about the amount that they were 
paid for these loans, and so I think that is something that we 
should look at. But in general, it was fine. As I stated in my 
comments, the SBA had to readjust, as did everyone else because 
the businesses that were most vulnerable were the ones that 
were being left out initially.
    Mr. MEUSER. All right. Thanks.
    So as the country opens up and the stores open up, how do 
you view the state of solvency of underserved small businesses 
and their continued access to capital?
    Mr. DAVIS. So I think that one of the things I would look 
at is the main street Lending Program that the Federal Reserve 
implemented. I actually like the structure of that program. You 
know, 5-year loan, 5 percent is held by the institution and 
there are no payments the first year. Interest only the second 
year. And then amortized. And so something more downstream for 
smaller business in order to have the same effect so that it is 
sustainable over time. I know we talk about the PPP program but 
generally, that is a one time injection into these businesses. 
What we need is a sustainable capital infrastructure. The 
private markets are the most efficient markets. And so 
government's role in making sure that we establish those 
markets as a backstop so that these institutions can make more 
loans and have more flexibility in my opinion is what we need 
to take a look at.
    Mr. MEUSER. Okay. I am very interested in revitalization in 
suburban, rural, as well as urban areas. So you brought up the 
idea of equity capital investments and the CDFIs within 
opportunity zones and creating opportunity funds. I do not know 
how much we can cover that right now but would you like to 
elaborate for 30 seconds on your point there?
    Mr. DAVIS. Sure. As it stands today, MDIs and CDFIs are not 
considered qualified opportunity businesses. The opportunity to 
have investors invest in a fund and that fund in turn invest in 
these MDIs, especially, is a good opportunity to inject capital 
into these institutions so that they can further lend out in 
these communities. Right now, that does not exist as a 
provision. And so in my opinion, that is something that you 
should take a closer look at.
    Mr. MEUSER. Okay, great.
    And I want to ask your thoughts on this. The Restaurant 
Revitalization Fund is depleted. It was $30 billion, I believe, 
and they have got nearly $70 billion. How is that affecting 
your communities, and do you have restaurants coming to you 
through the CDFIs and the MDIs in a panic? How are the 
restaurants faring and how are the CDFIs serving them?
    Mr. DAVIS. The restaurants have been in a tough situation. 
Obviously, when we shut the country down to some extent, these 
businesses where we have a lot of service individuals were some 
of the most vulnerable. And so when you think about those 
businesses, a lot of them went away and will not come back. One 
of the things that we really need to contemplate is being able 
to take a little more risk in the startups that we are going to 
see. We have to have more businesses willing to start up as we 
come out of this economic morass that we have been in. And so 
the restaurant business is one that I think is important and we 
are going to have to take a closer look at so I like the idea 
of the fund. Let's take care of those businesses from a smart 
perspective.
    Mr. MEUSER. Sure. Thank you.
    And Madam Chair, I know I am past my time. I would like to 
follow up with our witnesses on these very important issues so 
I would just like to perhaps do that with you, Madam Chair. But 
I yield back. Thank you.
    Chairwoman DAVIDS. Thank you. The gentleman yields back.
    The Chair would now recognize Rep. Evans for 5 minutes.
    Mr. EVANS. Thank you, Madam Chair.
    Madam Chair, I would like to question Mr. Sands. Mr. Sands, 
tell me about your partnership with the PACBFI Network and your 
work with California. Do you think the PACBFI network is a 
structure that be beneficial to other states? Mr. Sands?
    Mr. SANDS. Thank you, Representative Evans.
    I do. And just for background, Lendistry partnered with 17 
CDFIs, bringing 18 CDFIs together, including MDIs. We took 
roughly about 64,000 applications in a period of 20 days for 
$1.1 billion in requests to service the state. As I believe you 
know, but just in case, we were able to reach underserved small 
businesses in rural areas, revitalization areas. We had a 
significant amount of women-owned businesses and minority-owned 
businesses. Lendistry was then able to repeat that same process 
of roughly 60 institutions in California and take 334,000 
applications in roughly 15 days. The collaborations that we are 
now building with CDFIs, MDIs, and other mission-based 
organizations shows that there is a huge opportunity to deploy 
a significant amount of capital if given the opportunities with 
CDFIs and MDIs. Thank you.
    Mr. EVANS. Thank you.
    Mr. Davis, do you foresee CDFI continuing to use fintechs 
to assist them with their services? What are the benefits and 
challenges? And how can you provide better support to CDFIs 
that wish to use fintechs?
    Mr. DAVIS. Thank you, Representative Evans for that 
question.
    I am a big believer in financial institutions having robust 
digital capabilities as it relates to the future. And so when 
we think of a combination of CDFIs and fintechs, I think that 
could be a fairly novel idea. I think that a lot of people are 
going online now. Digital wallets. Digital is big. But I 
believe we will not see people in our lifetime get away from 
walking into bricks and mortar. That is just something that is 
going to be there. And especially in the communities that are 
the most vulnerable. If you pass by any bank branch in a 
distressed community on Friday afternoon, or you pass by any 
check cashing institution, you see lines. And so I think that 
as we can make a combination with digital robust capabilities 
of fintechs, along with CDFIs and MDIs, we can broader serve 
the communities that we are after.
    Mr. EVANS. Mr. Sands, do you think fintechs should have a 
permanent place in SBA programs, especially to help targeted, 
underserved small businesses? And if so, why?
    Mr. SANDS. Representative Evans, they do have a permanent 
place. That would be Lendistry. We are a fintech CDFI. We have 
proven that scale is something that can be done, that we can 
reach underserved small businesses. And I think that what 
fintech has allowed is a couple of things. The first thing I 
would mention is an unbiased approach to how we look at 
lending. Technology does not look at who the applicant is. It 
just takes them in and looks at their qualifications.
    The second thing is it allows us to collaborate with those 
who might not otherwise have the ability to provide technology. 
I do agree with Mr. Davis, there will be people who will come 
into a physical location but I believe it is also not a silver 
bullet. We have to recognize that most people, even 
underserved, even when they do not have broadband, do have a 
cellphone.
    The third thing I would mention is scalability, and the 
ability to scale is really, really important. And that goes not 
only just in volume, that goes in being accessible to small 
businesses when small businesses are doing their personal 
items. Banks are traditionally open from 9:00 to 5:00. Small 
businesses are open from 5:00 to 9:00. And so we have to think 
about these things, and we have to think about how to be more 
accessible to these small businesses when they are available 
and when they are doing their loan activities. Thank you.
    Mr. EVANS. Thank you.
    Mr. Davis, would you like to add any comment relating to 
the question I just asked?
    Mr. DAVIS. No, sir. Thank you, though.
    Mr. EVANS. Thank you. And I yield back the balance of my 
time, Madam Chair.
    Chairwoman DAVIDS. Thank you. The gentleman yields back.
    The Chair will now recognize Mr. Luetkemeyer, the Ranking 
Member of the Full Committee. You are now recognized for 5 
minutes.
    Mr. LUETKEMEYER. Thank you, Madam Chair.
    Great panel today. We have got a lot of great folks here 
who have got a lot of personal knowledge of the industry and 
how these programs all work.
    Let me start with Mr. Davis. You made the comment a few 
minutes ago and you have managed a small business portfolio at 
Wells Fargo, that we need to do something different with 
regards to delivery of these programs. And it would seem to me 
that as successful as the PPP program was and as disastrous as 
the EIDL program has been from the standpoint of fraud and 
abuse and mismanagement, the template is there for us to look 
at perhaps going to more direct lending from--take away the 
authority of SBA and use this third party, whether it is the 
banks, credit unions, or CDFIs, to be able to be the 
intermediary, the place where these loans originate, where the 
grants originate and have SBA become a grantor or a guarantor, 
I should say on these programs.
    Do you think that is a viable option all things considered 
by the way that the lack of fraud and abuse in the PPP program 
where the third-party bank was involved in making these loans 
versus the EIDL program which it looks like here I have got a 
number of $62.7 billion potentially in fraud and I know that 
there was another $6.7 billion identity theft alone. Those are 
unacceptable figures. We have to do something different. So is 
this something you think would be workable?
    Mr. DAVIS. As it relates to taking direct authority from 
the SBA, I do think it is something that is workable. Again, I 
go back to my thought that the markets are much more efficient 
and the thought process around using intermediaries, trusted 
intermediaries, when we give them the back-office support. A 
lot of MDIs and CDFIs complained during this last crisis that 
their technological backbone was not adequate to handle the 
volume that they received. And I think there is something that 
we can do to take a look at that. But I am a big believer in 
the intermediary system. And so I would not argue with looking 
at taking away the SBA's direct lending authority.
    Mr. LUETKEMEYER. Mr. James, I serve on the Financial 
Services Committee as well and the Ranking Member on the 
Financial Institutions Subcommittee. I have seen you appear 
before us a number of times. You are a very impressive 
individual with your background and your knowledge. And I am 
thankful you are on the Committee today because I think you 
bring a lot of expertise to it.
    So you heard my question to Mr. Davis. What would your 
opinion be of that situation, trying to find a better way to 
deliver the dollars to those folks who need it most, and it 
seems to be you are taking it right to the community versus 
having to go through some other government entity here to make 
that happen. What would your opinion be to that?
    Mr. JAMES. Thank you for the question, Ranking Member 
Luetkemeyer. It is great to see you again. And thank you for 
your work on Financial Services, which has been very beneficial 
to our institutions.
    Yes, sir. I believe that there is a real opportunity to 
look at the infrastructure that we built here in the past year 
and a half or so within CDFIs and MDIs. Leveraging additional 
technology, creating processes within our institutions. Many 
CDFIs did not have existing relationships with the SBA and now 
they do. Many of our MDIs had allowed their relationships to go 
dormant due to issues that they had had previously in many 
previous years with having the SBA honor guarantees and some 
other problems that occurred in previous generations. And so 
now that those relationships have been renewed and reactivated 
and we have created systems, I really do think that there is an 
opportunity for Congress to look at providing additional back 
office support to our institutions and really leveraging this 
capability that we built again to respond to the pandemic and 
potentially allow us to be the ones that are driving the 
resources into the communities. The issue of avoiding fraud and 
abuse is one that regulated institutions in particular have to 
take very, very seriously. So we have to comply with the Bank 
Secrecy Act and anti-money laundering requirements. We have to 
know our customers. And so the regulated financial institutions 
in particular are excellent at making sure that we identify who 
we are dealing with, whether we are doing it in a digital 
format or an in-person format. And so I do think that there is 
a great deal of opportunity to be explored in increasing our 
authority to deal with those customers that are closest to us, 
where we have the relationships, and where we also have the 
compliance infrastructure to make sure that the funds are going 
to the places that we intend for them to go.
    Mr. LUETKEMEYER. Thank you for that answer. That is exactly 
what I was hoping you would say and I think you have 
articulated it better than I can. And I probably will submit 
for the record another question here with regards to the 
troubled debt restructuring and forbearance I think has been 
very, very helpful to all of the institutions--banks, credit 
unions, CDFIs, all of those folks who are working with these 
entities and hold loans that have been able to give the kind of 
forbearance it takes to be able to ride out this situation we 
are in. So I appreciate your being here today and I look 
forward to sending that question and your response to it. thank 
you, sir.
    I yield back.
    Mr. JAMES. Thank you.
    Chairwoman DAVIDS. Thank you. The gentleman yields back.
    The Chair will now recognize Rep. Bourdeaux for 5 minutes.
    Ms. BOURDEAUX. Thanks so much. Thank you, Chairwoman Davids 
and Ranking Member Meuser.
    It is great to see Georgia so well represented on today's 
panel with Mr. James from Savannah, as well as Mr. Davis, whose 
work goes to support Georgia small businesses. As the only 
Georgia Member on the Committee, thank you for your work to 
support the small businesses in our state.
    My first question is for my fellow Georgian, Mr. James, but 
I welcome any input from some of the other witnesses if you 
have thoughts or experiences to share.
    Mr. James, as you know, the initial rounds of the Paycheck 
Protection Program did not really reach many of the underserved 
businesses who needed help the most. And thanks to the work of 
Chairwoman Velazquez, many Members on this Committee, as well 
as your organization, subsequent rounds have shown improvement. 
But of course, now we have the next phase, which is PPP loan 
forgiveness. And I am curious how you and your Members have 
found access to PPP loan forgiveness and how is that process 
working with minority-owned businesses? And is there more than 
can be done to reengage minority-owned small businesses and 
ensure they have the information necessary to apply for loan 
forgiveness?
    Mr. JAMES. Representative Bourdeaux, thank you so much for 
the question. It is great to represent the State of Georgia 
here today.
    Yes. The forgiveness process is actually extremely 
important to our institutions. Obviously, all of our 
institutions, whether they be regulated or unregulated CDFIs 
and MDIs, as well as the large institutions, we entered into 
the PPP program as a bargain counting on 100 percent guarantee 
from the SBA and easy to navigate forgiveness process. We are 
grateful to the Committee for streamlining the forgiveness 
process, particularly for those borrowers under $150,000. The 
original application that came out before the Committee and 
Congress took that action was going to be too onerous. It was 
frankly more onerous than the original application itself and 
it was going to be very discouraging to us helping our 
customers receive that forgiveness.
    One of the things that many of our institutions are doing 
is actually engaging even additional support. I know that my 
institution in Savannah, we have engaged a consultant 
specifically to assist our customers with that forgiveness 
process at no cost to them. Our median PPP borrower was about 
$26,000. We extended over 200 percent of our bank's capital to 
PPP because we saw the demand was really off the charts. And so 
we also decided early on this year that we needed to engage 
some additional assistance to make sure that our borrowers were 
able to complete even the streamline process. And so we just 
recently began a process of specific one-on-one outreach to our 
customers to make sure that they know what they need and they 
complete the process and get those loans forgiven so that they 
are not dragging debt into their additional efforts to 
recovery.
    Ms. BOURDEAUX. Just to follow up on that. We did a quick 
survey--this was earlier in the year--of some small businesses 
in the district and just sort of found that minority-owned 
businesses seemed less likely to be getting the loan 
forgiveness and getting that process in place. Do you see any 
disparity in that and do you have any insight on what might be 
the causes of it?
    Mr. JAMES. Well, you know, I think a lot of the disparity 
is the same sort of kind of structural disparity that you may 
have seen in the initial onset of the program. And so it is 
really important for financial institutions, whether they be 
MDIs, CDFIs, or large, traditional financial institutions to 
again do that one-on-one work. Our smaller institutions, the 
MDIs and the CDFIs, are the ones that are the closest to those 
individuals, the closest to those customers. We have those 
relationships and are taking the extra steps of providing 
support to our customers. I can certainly see how disparities 
are starting to pop up, and so I do believe that there is a 
real need for SBA, as well as the originating lenders to roll 
up their sleeves, particularly for smaller borrowers to ensure 
that they are making the kind of outreach to ensure that those 
folks do not have an obligation that they did not otherwise 
intend.
    Ms. BOURDEAUX. Okay. Thank you so much.
    Do any of the other panelists have any comments on that 
particular aspect of the PPP program?
    Okay. If not, I think I am out of time. I yield back. Thank 
you.
    Chairwoman DAVIDS. Thank you. The gentlelady yields back.
    And the Chair will now recognize Mr. Donalds of Florida for 
5 minutes.
    Mr. DONALDS. Thank you, Madam Chair.
    To the panelists, thank you so much for your time and your 
testimony. It has been very, very good, actually, so I really 
appreciate your time and you being here.
    Mr. Davis, you mentioned opportunity zones in your 
testimony, a program in the Tax Cuts and Jobs Act of 2017 that 
has faced a lot of scrutiny despite obvious gains, America's 
most distressed communities have experienced. MDIs and CDFIs 
are left out of this provision.
    Mr. Davis, can you speak to how CDFIs and MDIs could 
benefit small businesses if they were to be designed as 
opportunity zones?
    Mr. DAVIS. Thank you, Representative Donalds for that 
question.
    These institutions, as I said before, are a critical part 
of the community. And as it relates to investment of equity 
capital especially, they are highly important. If you think 
about the designation of opportunity zones, (it was highly 
politicized, so that aside) I think that it is a good program 
that can continue to be tweaked around the edges because we now 
do have those designations. And the idea in the spirit of the 
legislation was to unleash as much capital as possible into 
these communities without damaging the fabric or the 
individuals in those communities. And so because these MDIs and 
CDFIs have a real community component to them, they are much 
more capable of investing it and loaning to the folks and the 
businesses in these communities and others. And I think because 
they are so close to the ground, it would be a great 
opportunity to have them engaged and have the ability to be 
able to accept qualified opportunity fund investments.
    Mr. DONALDS. Thank you for that response. That is actually 
quite helpful.
    We often hear about how minority and rural microenterprise 
owners were late to access PPP and EIDL at the beginning of the 
pandemic. While I believe many other factors played into this, 
I think the root of the problem is largely due to the lack of 
financial institutions in these areas as a result of Dodd-
Frank. Regulations meant to punish big banks actually hurt 
smaller institutions the most. From the second quarter of 2008 
to the third quarter of 2020, CDFIs had a decline of over 47 
percent and over a third of MDIs went under during that same 
timespan. The widespread loss of these businesses present a 
serious threat to the financial stability of consumers and 
businesses located in areas almost exclusively served by 
community banks and other minority depository institutions.
    Mr. Davis, what steps do you think Congress could take to 
kind of spur development in these institutions?
    Mr. DAVIS. So Representative Donalds, you bring up an 
interesting point. The cost of compliance, regulatory 
compliance is very burdensome on financial institutions. And if 
you think of these institutions that are the smallest and those 
that are lending to the least of these, that regulatory burden 
is something to consider. Scale is important in the financial 
services business. When I mentioned that we went from 120 to 40 
to today 19 Black-owned banks and only one of them has a 
billion dollars in assets, that is inexcusable. So an 
investment in those banks from an infrastructure standpoint. 
But the regulatory piece has to be addressed as well. I have 
got experience with a regulator who said if you are going to 
build a $5 billion bank, you build a $5 billion infrastructure 
even before you get there. And so I have seen how these 
regulatory burdens can actually hurt institutions.
    Do not get me wrong. We need strong institutions there and 
we need regulations. But I think that there is some type of 
opportunity for Congress to look at how these banks are 
regulated as well as some type of backstop. And I am sure Mr. 
James can probably speak to that more articulately than I can. 
But that is my opinion, sir.
    Mr. DONALDS. That is actually a great segue because I was 
going to ask Mr. James for his opinion as well.
    So Mr. James, if you could comment I would appreciate it.
    Mr. JAMES. Thank you, Congressman.
    Mr. Davis is correct. I think that we need to find the 
right type and amount of regulation. None of our institutions 
want there to be unsafe or unsound lending practices. We 
certainly want to be very, very compliant with Know Your 
Customer and the Bank Secrecy Act and AML, but there is 
certainly an enormous burden. And that burden does not change 
regardless of the size of your institutions. You still have to 
comply with the same laws and regulations no matter the size of 
your institution. Of course, small scale and minimal capital 
will impact our ability to efficiently provide that type of 
compliance which impacts our ability to provide service back to 
the community. And so just having a right size type of 
regulation based on our institution size and our reach into the 
community would be welcomed. And so we welcome Congress and to 
have the opportunity to work with you to try to find the right 
size regulations for institutions that are serving the smallest 
and most hard hit and vulnerable communities.
    Mr. DONALDS. Thank you.
    Madam Chair, I apologize for being slightly over my time 
but I yield back.
    Chairwoman DAVIDS. Thank you. The gentleman yields back.
    The Chair will now recognize Ms. Chu for 5 minutes.
    Ms. CHU. Thank you.
    Mr. Sands, community financial institutions like CDFIs and 
MDIs have been instrumental in delivering PPP assistance to 
underserved communities throughout this pandemic and I am 
particularly interested in your perspective as a CDFI and one 
of the country's largest community advantage lenders. PPP 
showed that the community advantage model can work at scale by 
leveraging mission-based lenders to connect small businesses in 
underserved markets to capital. One reason this model works is 
because community advantage lenders, unlike traditional banks 
and 7(a) lenders provide technical assistance to their clients. 
This assistance not only helps them to secure that initial 
community advantage loan but also prepares them for future 
growth.
    So could you discuss the role of technical assistance and 
mission-oriented lending and how this strengthens the Community 
Advantage Program?
    Mr. SANDS. Absolutely. Thank you, Representative Chu. And I 
am glad to see you representing California.
    I would like to say that I think technical assistance, we 
all know--all the lenders who are on the panel and in the room 
and who have done the studies--we know that providing technical 
assistance services has a direct correlation to having lower 
default and loss rates inside of our institutions. Community 
development financial institutions have been focused on 
providing assistance and that assistance is helping these 
borrowers to not only have access to community advantage and 
PPP loans, but other loans historically, and they do much 
better in terms of paperwork compliance and different things 
like that as they are scaling their businesses. Thank you.
    Ms. CHU. Thank you for that.
    Ms. Barry-Fall, PPP funding is exhausted for traditional 
lenders and is nearly exhausted for community financial 
institutions like CDFIs and that means time is almost out for 
us to address racial disparities in the program. Earlier this 
month the L.A. Times published an investigation finding that in 
Los Angeles, businesses in majority White communities received 
PPP loans at twice the rate of those in Latino neighborhoods, 
1.5 times the rate of Black neighborhoods, and 1.2 times the 
rate of Asian neighborhoods.
    I sent a letter to SBA and Treasury asking for an official 
analysis of racial disparities and a plan to address this 
issue. Can you expand on any racial disparities and PPP uptick 
that you have seen in your community and talk about ways that 
SBA and Congress can leverage community financial institutions 
moving forward to address these disparities?
    Ms. BARRY-FALL. Can you hear me?
    Ms. CHU. Yes.
    Ms. BARRY-FALL. Yes. Thank you for your question, 
Congresswoman.
    One of the things that we have considered is who is getting 
the PPP. As of now, we are just kind of processing all the PPP 
applications that we are receiving. And we serve our majority 
is like low-income communities. We are not like really kind of 
going through the whole detail of the application and find out 
like what is the percentage of it. But I am sure like because 
we have been like serving mostly our Members, I am sure like we 
have been targeting like our target market rate.
    Ms. CHU. Thank you for that.
    Mr. Sands, thank you for your recommendations for the 
Community Advantage Program. It aligns with my legislation that 
passed the House, unanimously passed this last December which 
proposed to authorize the program for 5 years, increase the 
maximum loan amount to $350,000, and expand targeting of 
underserved businesses. And we have to make sure that as we 
recover from COVID that there is long-term small business 
recovery. As a major lender, can you discuss how giving the 
program long-term statutory authorization will lift it out of 
the short-term status and impact the program's effectiveness?
    Mr. SANDS. Thank you again for the question.
    I actually think it is quite surprising that anyone would 
not have voted for the bill. Number one, it is the only program 
in SBA's history, and possibly in any of administration's 
history, that has double digit numbers in terms of lending to 
Asians, African Americans, and Hispanic Latinos. That alone 
shows that the program works and that alone shows that the 
program should have possibly its own appropriation, possibly 
higher loan guarantees, and other things to supercharge it. I 
would also like to make a recommendation that we look at the 
PPLF facility as possibly a funding source for Community 
Advantage going forward. If the CDFIs and MDIs had that ability 
and had that access to capital, I think you would see those 
numbers be even more expanded and even more tremendous than 
what they are today compared to the other programs. Thank you.
    Ms. CHU. Thank you. I yield back.
    Chairwoman DAVIDS. Thank you. The gentlelady yields back.
    The Chair will now recognize Ms. Van Duyne for 5 minutes.
    Ms. VAN DUYNE. Thank you very much, Chairwoman Davis and 
Ranking Member Meuser for holding this hearing today.
    During my tenure as mayor, the City of Irving witnessed 
unprecedented economic growth and development. We added 
thousands of new jobs and billions of dollars to our local 
economy. With these improvements, we were able to bring in 
jobs, build new places to live, and create more opportunities 
for people to learn, thrive, and grow. I appreciate the 
opportunity to hear from today's panel on how we can better 
foster capital for our small businesses.
    But I am also very deeply concerned about the current 
economic environment that they face. They are falling by the 
wayside as the Biden administration touts unemployment benefits 
that contributed to one of the most disappointing jobs reports 
that we have seen in history and continue to provide the 
necessary and unnecessary stimulus that is leading to 
skyrocketing inflation, protections, and all Americans.
    We cannot talk honestly about wanting to provide 
opportunities for small businesses in underserved communities 
while Congress stands by and actively competes against them for 
employees. The number of employees I have spoken with in my 
district desperately seeking employees is staggering. Make no 
mistake; the federal government is actually hurting the very 
businesses in need of help.
    I am looking forward to the work ahead on this Committee as 
the economy reopens and we need to transition out of the 
pandemic response. But this Committee also needs to hear 
directly from administration officials who are in charge of 
these programs. And I would like to reiterate my request to 
bring Small Business Administration officials in front of this 
Committee as soon as possible. Until that time, I look forward 
to hearing our witnesses' thoughts on improving the flow of 
capital to small businesses.
    With that, I would like to ask Mr. Davis, while I was 
working at HUD, I worked a lot with opportunity zones and I 
think they are strong drivers of economic activity in 
communities due to the incentives for private investment and 
minimal red tape. In your testimony you mentioned allowing 
CDFIs to receive equity investments as opportunity zone 
businesses. Can you talk more about how this would work? And 
are there any other improvements to opportunity zones that you 
think should be made to help small businesses even further?
    Mr. DAVIS. Thank you, Representative Van Duyne, for that 
question.
    Starting with the last first, I think that one of the 
things we talk about in the bill of opportunity zones and 
tweaking it is transparency. What we do not have today is a 
measuring or reporting mechanism to know exactly who we are 
helping and how we are helping them. And so I think that is 
going to be an important issue going forward as we think about 
tweaking this.
    The other thing as this relates to getting capital flow 
into these businesses, during my testimony I also talked about 
the ECIP program at SBIC. A lot of people forget about SBICs as 
part of the SBA. And these licenses are very valuable. Two to 
one, three to one matches. And so again in my testimony I 
stated out of over 300, only 5 are in the hands of Black-owned 
founders. That means 1 percent of those dollars go to Black-
owned businesses; 1 percent go to Hispanic businesses as I am 
told by the SBA.
    We need every bit of capital flowing to these communities 
that we can get because when they thrive, we thrive broadly. 
And so as we think about improving the flow of capital, I think 
that is one opportunity to really do it along with opportunity 
zones as well.
    I want to reiterate something Mr. Sands said though as it 
relates to technical assistance. Whatever we do, Representative 
Van Duyne, as we think about how we get more capital flowing, 
and I have talked about startups before, this technical 
assistance piece is going to be critical. And I think that, for 
example, you can be the best chef in the world but meeting 
payroll, growing a business, understanding staff are different 
things. And so I think those are all elements that go into 
this.
    Ms. VAN DUYNE. Excellent.
    Can you also identify any burdensome, like be specific 
about burdensome regulations on lenders that make it difficult 
for them to make loans in these underserved communities?
    Mr. DAVIS. I would first off start with the overall cost of 
compliance and regulation. The cost is the same, as Mr. James 
said, it does not matter what size you are. You still have the 
same costs. In these institutions, we need scale. And in order 
to scale, there has to be invested equity capital. And so until 
we look at a different way to reform the regulatory aspects of 
how these institutions are regulated specifically, I think that 
it is going to be interesting overall. So I would not look at 
any one specific regulation. I would look at the cost and 
burden of overall regulation because that is where it really 
hurts these small institutions.
    Ms. VAN DUYNE. Okay. Thank you.
    I think I am over my time.
    Chairwoman DAVIDS. The gentlelady yields back.
    It looks like, okay, I thought maybe one more Member would 
be joining us.
    Well, first of all I would like to say thank you again to 
all of our witnesses for joining us today. I also want to thank 
you for your work on behalf of America's underserved small 
businesses, particularly over this last year that we know has 
been so difficult during the pandemic. I know I heard stories 
from lots of employees at organizations like yours that went to 
great lengths to help their clients access the relief that they 
needed to stay in business and keep their doors open. So your 
tireless efforts have made a difference in the lives of so many 
entrepreneurs. And I know I, and so many others, appreciate you 
all for that.
    And then moving forward, we have to utilize and maximize 
your work ethic and also the connection to underserved 
communities to help ensure that we do not leave people behind 
as our economy recovers.
    To that end, I am committed to working with the SBA to help 
its capital access program serve the underbanked and also to 
monitor the engagement of the federal banking regulators with 
CDFIs and MDIs as it relates to small business lending.
    So today's hearing has given us a lot of ideas about ways 
to empower CDFIs and MDIs, and I am looking forward to working 
with the Members of this Committee to act on those 
recommendations.
    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.
    [Mr. Walter L. Davis did not submit his QFR's in a timely 
manner.]
    [Whereupon, at 11:21 a.m., the subcommittee was adjourned.]
                           
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