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




 
            SBA MANAGEMENT REVIEW: OFFICE OF CAPITAL ACCESS

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                              MAY 18, 2022

                               __________

  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                         
                               




            Small Business Committee Document Number 117-056
             Available via the GPO Website: www.govinfo.gov
             
             
             
             
                              ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
47-535              WASHINGTON : 2022           
             
             
             
                   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
                        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. Nydia Velazquez.............................................     1
Hon. Blaine Luetkemeyer..........................................     2

                                WITNESS

Mr. Patrick Kelley, Associate Administrator, Office of Capital 
  Access, United States Small Business Administration, 
  Washington, DC.................................................     4

                                APPENDIX

Prepared Statement:
    Mr. Patrick Kelley, Associate Administrator, Office of 
      Capital Access, United States Small Business 
      Administration, Washington, DC.............................    34
Questions and Answers for the Record:
    Questions from Hon. Houlahan to Mr. Patrick Kelley and 
      Answers from Mr. Patrick Kelley............................    40
    Questions from Hon. Luetkemeyer to Mr. Patrick Kelley and 
      Answers from Mr. Patrick Kelley............................    41
    Questions from Hon. Tenney to Mr. Patrick Kelley and Answers 
      from Mr. Patrick Kelley....................................    48
    Questions from Hon. Donalds to Mr. Patrick Kelley and Answers 
      from Mr. Patrick Kelley....................................    49
Additional Material for the Record:
    None.


            SBA MANAGEMENT REVIEW: OFFICE OF CAPITAL ACCESS

                              ----------                              


                        WEDNESDAY, MAY 18, 2022

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:02 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Golden, Davids, 
Phillips, Chu, Evans, Houlahan, Andy Kim, Craig, Luetkemeyer, 
Williams, Stauber, Meuser, Tenney, Garbarino, Young Kim, Van 
Duyne, Donalds, and Fitzgerald.
    Chairwoman VELAZQUEZ. Good morning. I call this hearing to 
order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    I would like to begin by noting some important 
requirements. Standing House and Committee rules will continue 
to apply during hybrid proceedings. All Members are reminded 
that they are expected to adhere to these rules, including 
decorum.
    House regulations require Members to be visible through a 
video connection throughout the proceeding, so please keep your 
cameras on. Also, remember to remain muted until you are 
recognized to minimize background noise.
    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.
    Our nation's 30 million small businesses come in all shapes 
and sizes across various industries. Regardless of the product 
they sell or the number of employees on their payroll, the 
ability to access capital is crucial to their success. 
Unfortunately, our committee frequently hears from 
entrepreneurs about the struggle to obtain an affordable loan 
on reasonable, nonpredatory terms.
    The data supports these anecdotes. The Federal Reserve 
published its 2022 Small Business Credit Survey that found that 
almost 60 percent of small employer firms reported not having 
their capital needs met.
    To fill this gap, the Small Business Administration offers 
a range of lending programs to serve businesses that cannot 
obtain credit elsewhere.
    These initiatives are administered by the Office of Capital 
Access, also known as OCA.
    OCA carries a loan portfolio of over $1 trillion and 
oversees traditional SBA initiatives and pandemic relief 
programs. Their work is fundamental to the SBA's mission of 
helping Americans start, build, and grow small businesses.
    Today, I would like to hear from our witness about what is 
working well at the office and the challenges they face. This 
is especially important in the wake of an unprecedented 
increase in demand for SBA's traditional lending offerings.
    For example, in FY2022, the 504 loan program experienced 
record-high demand and reached the authorized lending limit of 
$7.5 billion, causing the program to pause lending in early 
September.
    This increased demand has persisted in FY2022, and the 
program was on pace to be forced to shut down in July before a 
funding level adjustment was enacted. We are grateful for the 
bipartisan and bicameral cooperation between our Committee and 
the Appropriations Committee to secure that funding adjustment 
and keep the 504 program open for lending this fiscal year.
    However, we must continue finding ways that the agency and 
Congress can ensure that SBA programs are equipped to keep pace 
with demand from small businesses.
    I would also like to discuss the steps OCA is taking to 
help create a more equitable small business economy.
    SBA data shows that the number of 7(a) loans of $150,000 or 
less declined by almost 52 percent since FY2016, and that loans 
of $50,000 or less fell nearly 58 percent during the same 
period.
    Administrator Guzman stressed the importance of small-
dollar loans when she testified before the Committee last 
month, so I would like to hear more about OCA's work to ensure 
that all small firms have access to the capital they need to 
thrive.
    With the recent news of the COVID EIDL program closure, 
this is a very timely hearing for us to discuss the OCA 
administration of pandemic relief initiatives. On Thursday, May 
5th SBA announced that it would no longer accept applications 
for loan modifications, reconsiderations, and appeals due the 
exhaustion of program funding. Today, I hope we can provide 
answers to the many Members and businesses calling us who are 
awaiting application decisions.
    Small employers are leading the way in our pandemic 
recovery. Since 2021, entrepreneurs have started a record 
number of small businesses, and small firms have created jobs 
at a historic pace.
    However, their continued success is contingent on their 
ability to access capital. I look forward to discussing the 
Office of Capital Access and what Congress can do to help the 
office better serve American small businesses.
    I would now like to yield to the Ranking Member, Mr. 
Luetkemeyer, for his opening statement.
    Mr. LUETKEMEYER. Thank you, Madam Chair, and thank you for 
holding this hearing today with Mr. Kelley.
    Prior to the COVID-19, the nation's small businesses and 
our economy in general were operating at full speed. The low 
tax environment enabled by the 2017 Tax Cuts and Jobs Act and 
the smart regulatory environment, we were allowing small 
businesses to grow, compete, and create jobs across America. 
Unfortunately, the capacity restrictions and shutdown measures 
of COVID-19 forced small businesses to think and operate 
differently.
    With limited foot traffic and minimal dollars coming 
through their doors, small businesses were left without any 
options. They turned to the federal government and the 
country's COVID-19 relief measures, in particular, the Paycheck 
Protection Program. Overnight, millions of small businesses 
became aware of the resources and tools available to them at 
the Small Business Administration. Additionally, thousands of 
lenders raced to assist them.
    When I am home, I sit and I talk to small businesses and I 
often hear that the PPP saved their businesses. While the 
nation continues to recover, our work is not over. Agencies and 
program offices that ran and played a significant role with 
these relief measures must continue to talk and work with 
Members of Congress. That is why I am glad to have Mr. Kelley 
before us this morning.
    In addition to helping administer the PPP, the Office of 
Capital Access has also in the Biden administration taken the 
reigns of the fraud-plagued Economic Injury Disaster Loan 
program, also known as EIDL. And the office was involved with 
the unconstitutional and underfunded Restaurant Realization 
Fund where Congress prioritized some restaurant owners over 
others. To say the least, we have a lot of questions for this 
office on how they performed over the last 2 years.
    For example, the Biden administration continues to defer 
EIDL payments for small business owners. These loans, which 
have a maturity of 30 years, now have a deferment payment of 
over 30 months. That means the American public, Congress, and 
law enforcement won't know how the program has performed, now 
will they see the true extent of fraud until payments are 
required. The SBA's Inspector General has already flagged this 
program for potentially $80 to $90 billion in fraudulent loan 
activity. And yet, this office, the administrator, and the 
Biden administration continues to defer payments.
    I would like to remind everyone, the EIDL program was a 
direct loan and grant program where the SBA qualified small 
businesses and disbursed funds directly. The SBA Inspector 
General has documented that an anti-theft was rampant in this 
program. In fact, follow-up answers to this Committee by the 
administrator indicate that the number of flagged applications 
for anti-theft has swelled to over 1 million. This means that 
criminals go through the SBA's open door and entered the 
program illegally.
    Additionally, and just yesterday, the SBA Inspector General 
found its independent auditor's report that the SBA Direct 
Disaster Loan Program continues to be overwhelmed with issues. 
The report indicates that the program had gross improper 
payments and an unknown payments rate exceeding 10 percent, 
which is higher than the statutory amount.
    Beyond these very large concerns, this office also 
administers all of the SBA's government guaranteed lending 
programs. These programs, which are delivered to small 
businesses through efficient and responsible public-private 
partnerships with lenders, assist small businesses when 
traditional and conventional capital is not available.
    Who is accessing these programs? Who is lending within 
these programs? How is SBA overseeing these lenders? These are 
major questions that need to be addressed. With all the new 
interest and focus on SBA, this office's list of statutory 
required duties is long. We have a lot of work that is mandated 
in law. New and extraneous projects must not divert attention 
away from what they must accomplish.
    COVID programs must be concluded effectively, efficiently, 
and responsibly. Traditional programs need to be calibrated and 
staffed appropriately. Unfettered policymaking and decision 
making will not stand.
    However, I am glad the SBA will be at least here today to 
testify because I cannot say the same about Secretary Yellen. 
Even though she is charged with onboarding new PPP lenders and 
despite being statutorily required to testify, she continues to 
ignore this Committee and America's small business.
    As I said earlier, our work is not done. With soaring 
inflation, the economic environment for small business is not 
great. However, despite these challenges, small business owners 
have the resiliency to drive our nation forward.
    With that, Madam Chair, I look forward to today's 
conversation and the many conversations before us regarding 
SBA's Office of Capital Access. And I yield back.
    Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The 
gentleman yields back.
    With that, I will now introduce our sole witness today, Mr. 
Patrick Kelley. Mr. Kelley is currently serving as the 
Associate Administrator of the Small Business Administration 
Office of Capital Access. This is Mr. Kelley's second tour of 
duty at SBA. He previously served as Deputy Chief of Staff, 
Deputy Associate Administrator, and Senior Advisor at SBA 
during the Obama administration. Prior to his current service 
at SBA, he was an executive with an active lender in the 7(a) 
program. His blend of public and private sector experience has 
been invaluable as he lead the SBA efforts with the third round 
of PPP funding and now in the critical forgiveness stage. Mr. 
Kelley is a graduate of Colgate University and Boston College 
Law School.
    Welcome, Mr. Kelley. You are now recognized for 5 minutes.

STATEMENT OF PATRICK KELLEY, ASSOCIATE ADMINISTRATOR, OFFICE OF 
  CAPITAL ACCESS, UNITED STATES SMALL BUSINESS ADMINISTRATION

    Mr. KELLEY. Thank you. Good morning to the Committee. Good 
morning, Chairwoman Velazquez, Ranking Member Luetkemeyer. On 
behalf of our Administrator, Isabella Guzman, it is my pleasure 
to be here.
    As the Chairwoman noted in my bio, my name is Patrick 
Kelley. I am the associate administrator for the Office of 
Capital Access. Since last March 2021, so just over a year, I 
have had the opportunity to serve alongside some of the 
greatest civil servants that this country has put forward.
    For the last 24 months, civil servants in the Office of 
Capital Access and cross-office of Disaster Assistance have put 
forward over a trillion dollars of lending that as was noted by 
the Ranking Member's remarks, is greatly appreciated all over 
the country by small businesses. They are dedicated, 
outstanding, and it is my privilege to work with them.
    Over the last 12-plus months, our office has been 
responsible for the PPP program round three which originated 
another $6.1 million roughly PPP loans in phase three. The 
COVID EIDL program we took over in July and that has led to an 
additional 300,000 more or less, loans made in 2021 until 
today. Each of those programs is hundreds of billions of 
dollars.
    In addition, as was noted, I had the pleasure of 
administering the Restaurant Revitalization Program on behalf 
of Administrator Guzman were we put out $28.6 billion to 
101,000 restaurant-related entities more or less in 45 days 
from the bill's passing. That particular program was an 
opportunity to work with grant recipients who are near and dear 
to all of us. You cannot tell the story of your life without a 
restaurant or related entity, and certainly, that is true for 
me.
    With respect to the core programs, as Chairwoman Velazquez 
noted, the lending in our core programs in fiscal year 2021 
continued at a pace. In addition to the 504 numbers that were 
cited, the 7(a) program also distributed $35 billion to roughly 
50,000 small businesses. So those particular programs will 
continue to be of use as we move forward for small businesses, 
most especially to attack the problems that Chairwoman 
Velazquez spoke about earlier with respect to accessing small 
dollar loans which continues to be a persistent challenge. And 
we have recently begun to address that by building off of one 
of I think the bipartisan successes of the PPP program. As you 
all know, in round three, community financial institutions were 
given an exclusivity period at the outset of that program in 
order to onboard those parts of the community that felt they 
were underbanked in rounds one and two. That led to 600 
community financial institutions making roughly $30 billion of 
additional PPP loans more or less over that phase three.
    As was mentioned, we have 5,000 lenders who participated in 
the PPP program. They span financial technology companies, 
which historically are not eligible to lend in the program. 
Community financial institutions which historically have been 
limited to the Community Advantage Program, and obviously, 
banks and credit unions. In a typical 7(a) year, about 1,900 
banks make at least one loan, and over a 5-year period it is 
roughly 4,000.
    So one of the tasks that Administrator Guzman has put our 
office on is ensuring that we build off of the momentum of 
participation by simplifying the products on behalf of our 
lending intermediaries so that they might leverage digital 
tools and take advantage of the secondary market tool which is 
an excellent resource for SBA 7(a) lenders.
    And finally, the 504 program continues to be an outstanding 
resource. Certainly, as we contemplate a rising interest rate 
environment, a 25-year-fixed rate note is an incredibly 
powerful tool. The other great part of that particular program 
is owner-occupied real estate, so it enables a small business 
owner to build value in terms of an asset and allows for a 
third-party lender to participate in the deal.
    With that, I will yield back the time.
    Chairwoman VELAZQUEZ. Thank you, Mr. Kelley. I will 
recognize myself for 5 minutes.
    Mr. Kelley, earlier this month, we learned COVID EIDL funds 
had run out, and I am concerned that the agency did not have a 
more detailed plan to notify constituents about the changes in 
the program.
    Mr. Kelley, could you please let the Committee know where 
the breakdown occurred and what do we say to our constituents 
who have been dealing with this confusion?
    Mr. KELLEY. Sure. Thank you, Chairwoman.
    First off, it is important to note that there were about 
61,000 workable files at the close of business on May 6th and 
all of those workable files across appeals, reconsiderations, 
and loan modification requests that are eligible for funding 
did, in fact, get approved for funding and have funds 
obligated. And that is as of Monday, May 16th. There is a 
population, for example, within the reconsideration which was 
roughly about 9,000 applications for which folks will not be 
approved, were not approved, and that is the result of issues 
related to credit criteria, tax information, various issues. 
But I do want this Committee to know and for the small 
businesses to know that we did honor all of the applications 
that were in before the funding expired and came in at the tail 
on May 5th and 6th.
    Second, it is important to understand what this population 
is. The program has been in wind down since December 31st of 
2021 when applications for new borrowers were no longer allowed 
past that date. So, for example, the 5.4 million startups, 
businesses that came online in 2021 would not be able to access 
this particular product. But the 3.6 million borrowers that 
were made in 2020 are seeking loan modifications or 
reconsiderations.
    It is also important to note that the program does not 
allow a loan increase past 24 months for the original note. As 
this Committee knows, 3.6 million loans were originated in 
roughly 120 days in the spring of 2020 and so that 24-month 
period is tolling. And so we have exhausted the funding as 
Chairwoman Velazquez said, and it is also timely because the 
loan increases were going to toll for 93 percent.
    Chairwoman VELAZQUEZ. Okay. We need a commitment from you 
to work with all the Members, and not only the Members of this 
Committee but across the board, to provide transparency and 
finality to this process. I will ask you to communicate that to 
the loan officers and district offices so that they are aware 
that that is a commitment that you make to this Committee.
    I understand that SBA plans to transfer all disaster 
lending to OCA soon. We have seen the Office of Disaster 
Assistance do good work in response to major disasters, 
especially in Puerto Rico after Hurricane Maria where ODA 
provided over $2.2 billion in disaster loans. Can you guarantee 
this transfer will not compromise the ability of SBA to respond 
to natural disasters?
    Mr. KELLEY. Yes. And it is important to note that the 
Office of Capital Access will solely be responsible for the 
lending but the Office of Disaster Assistance will continue and 
be involved in preparedness which is obviously an important 
first step in any disaster.
    Chairwoman VELAZQUEZ. Thank you. Congress waived the 
personal guaranty requirement in the CARES Act to ensure coops 
and ESOPs could access PPP and EIDL funds. For 7(a) loans, SBA 
continues to require an unlimited personal or entity guarantee 
which virtually no co-op can provide based on their business 
structure. Given the precedent set with PPP to not require a 
personal guaranty for loans to ESOPs and co-ops, why does SBA 
continue requiring a personal or entity guaranty for 7(a) loans 
to co-ops and ESOPs?
    Mr. KELLEY. So, as Administrator Guzman has reflected in 
her public comments and maybe even before the Committee, this 
is an important opportunity to ensure that employees get 
ownership in the small businesses, and obviously, to deal with 
succession planning which I know from my lending experience is 
acute for the Baby Boomer generation in particular. This is an 
important tool and we are working, for example, with the USDA 
which also supports, as you know, loans to small businesses, 
specifically for coops. And with that guidance, we are working 
on addressing issues together with the lender.
    Chairwoman VELAZQUEZ. Thank you. My time has expired.
    Now I recognize the Ranking Member, Mr. Luetkemeyer, for 5 
minutes.
    Mr. LUETKEMEYER. Thank you, Madam Chair. Welcome, Mr. 
Kelley.
    In your opening statement, you briefly discussed the SBA's 
Direct Forgiveness portal. On the morning of August 30, 2021, 
an email signed by you was sent to PPP lenders. You state, and 
I quote, ``Going forward the SBA will be conducting independent 
outreach and audits on lenders who have not actively 
communicated to borrowers on the availability of forgiveness. 
This outreach will be primarily focused on those lenders who 
are not participating in direct forgiveness. To avoid these 
lender audits, we would encourage you to opt in to Direct 
Forgiveness and maintain an active and aggressive outbound 
campaign to your PPP borrowers.''
    Why do you think it is necessary, Mr. Kelley, to threaten 
the lenders like that?
    Mr. KELLEY. I do not believe that I was threatening. What 
we were responding to was banks communicating directly to the 
Office of Capital Access personnel that they were withholding 
starting forgiveness process in order to smooth out earnings 
across 2021 and 2021. So at the time of that note, what we were 
trying to help was the small businesses that were also 
notifying the office that they did not have access to a portal 
in order to seek forgiveness. The note, I will grant you, if I 
could rewrite it, I would, but the sentiment was that we have 
tools that we made available for over 1,500 lenders that have 
serviced 2.5 million PPP loans.
    Mr. LUETKEMEYER. Well, thank you for that but the tone was 
such that it looks like to me like you were trying to 
intimidate the lenders there into doing something which begs 
the question, why do you think it is your job to manage the 
loan portfolio for the lenders? Do you not think they know 
their lenders better than you do such that if they felt that 
this person was eligible for forgiveness that they would 
probably have contacted them? If it was somebody they did not 
feel was worthy of forgiveness they probably would not contact 
them? I mean, I believe that they are the lender, you are the 
guarantor in the PPP program, why would you want to get in the 
middle of that relationship?
    Mr. KELLEY. We wanted to get into the middle of that 
relationship because there were direct reports from small 
businesses that banks were not making forgiveness available for 
their borrowers. And so what is important----
    Mr. LUETKEMEYER. Do you not think it would be better then 
to send out a reminder to the banks or update them on the fact 
that, hey, you realize that the forgiveness process has 
started. You need to be contacting these folks. We think it 
would be a good idea to go through your portfolio and take a 
look at it instead of trying to threaten them like that. That 
is not what SBA should be in the business of. Not managing 
their portfolio for them, that is up to the lender. That is not 
in your job description in this PPP program.
    Mr. KELLEY. So I agree that we should let the lenders 
execute forgiveness if they, in fact, are doing that, and we 
support that. To your point, we do extensive outreach with 
respect to forgiveness immediately when I joined the agency 
beginning in March of 2021.
    Mr. LUETKEMEYER. Okay. Next question. According to SBA's 
Inspector General, to date, how much potential fraud was 
identified within the EIDL program?
    Mr. KELLEY. So, I do not believe that the Office of the 
Inspector General has stated an estimate of exact fraud. What 
they have done is a series of reports that reflect estimates of 
improper, ineligible loans. For example, the largest bucket, 
which reflects the number that you are quoting is the fact that 
in 2020----
    Mr. LUETKEMEYER. I have not quoted a number yet, Mr. 
Kelley. I was waiting for you to do that. The number in the 
report is $84 billion that they anticipate could be 
fraudulently accessed funds.
    So, how much was identified in the PPP program?
    Mr. KELLEY. So, again, there has not been a definitive 
number released by any of the auditors. What is true about both 
of the programs is that there were choices made in 2020 in both 
programs which created the opportunity for an increased 
likelihood of fraud. So, for example, in PPP, specifically, one 
of the audit findings referenced 50,000 duplicate loans. That 
was the direct result of the decision by the Secretary of the 
Treasury at the time to make the loan accounting system----
    Mr. LUETKEMEYER. I understand the problem. In the report 
they are talking about roughly 5 percent of the loans to be 
fraudulently accessed.
    In your opinion, when you look at 20 percent versus 5 
percent roughly, did the private sector do a better job of 
getting these loans out and preventing fraud?
    Mr. KELLEY. Well, they are two different programs. So, for 
example----
    Mr. LUETKEMEYER. Why are they different then? In what 
respect do you feel they are different, that they were able to, 
one not prevent fraud and the other one, at a minimal rate, 
versus the other one with a 20 percent rate?
    Mr. KELLEY. Well, first off, I do not agree that the IG or 
any of the auditors has identified the percentages that you are 
speaking to----
    Mr. LUETKEMEYER. Well, Mr. Kelley, with all due respect, 
all you do is you take the amount of money that has gone out 
the door, you take the amount of money that they think has been 
fraudulently accessed, and you divide that out and you come up 
with a percentage. One is roughly 20 percent on EIDL loans, 
roughly 5 percent on PPP. So my question is, if the direct 
lending of SBA is resulting in a 20 percent rate versus the 
private sector is only 5 percent, we have got a problem.
    Mr. KELLEY. Yes.
    Mr. LUETKEMEYER. And all I want you to do is acknowledge 
the fact that that is the case. And you have two separate 
entities here who are direct lending and there is a big 
difference in the results.
    Mr. KELLEY. Yeah.
    Mr. LUETKEMEYER. That has to be acknowledged. You cannot 
deny the facts. It is in the reports.
    Mr. KELLEY. Sure. What I can acknowledge is that in the PPP 
program, for example, the top 25 depository institutions in the 
United States originated 96 percent of their PPP loans to 
existing customers. Those existing customers had already, as 
you know, gone through KYC and were on the books either as 
depositor or loan borrowers. For community banks that number is 
83 percent. The Disaster Loan program is a credit, not 
available elsewhere, last resort program. As you know, and the 
Committee reflected in the Economic Aid Act the fact that----
    Mr. LUETKEMEYER. So the point though, Mr.----
    Mr. KELLEY.--there was a need for folks that had not 
received funding.
    Mr. LUETKEMEYER. With all due respect, Mr. Kelley, the 
point--I reclaim my time. The point is that there are things in 
place that help minimize fraud in one situation that are not 
there in the other that we need to take a look at.
    I thank you. I yield back.
    Chairwoman VELAZQUEZ. Time has expired.
    Now we recognize the gentleman from Pennsylvania, Mr. 
Evans, for 5 minutes.
    You are muted, Mr. Evans.
    Mr. EVANS. I am muted.
    Some of my constituent business owners have been working 
with the SBA on EIDL reconsideration for a year or more. 
Several of them have been in the process for so long due to 
reasons beyond their control such as tax documents expired 
between SBA loans have been delayed in submitting the document 
to the IRS. Can you explain the timeline going forward for 
these cases and those that are either submitted or approved 
status?
    Mr. KELLEY. Yes. So, as I mentioned earlier in the 
testimony, there were roughly 61,000 outstanding workable or 
eligible files which meant that they were either seeking an 
appeal of a previous decline, a reconsideration of a previous 
decline, or a loan modification which is an increase to their 
existing loan. One of the persistent challenges in this 
particular program is the disconnect between the choice that 
was made in 2020 regarding not validating tax income for 3.6 
million borrowers versus the desire in the Economic Aid Act for 
2021 to require, again, as is the case historically for natural 
disaster lending at SBA to verify tax income.
    It is important to remember that the tax information that 
we are seeking for these borrowers is their 2019 filing. It is 
now May 2022. For the reconsideration requests, in almost all 
cases the original denial is due to a discrepancy that has been 
reviewed by a loan officer with respect to an amended tax 
return. The amendment is seeking a higher increase amount than 
the borrower is eligible for and not surprisingly, the borrower 
is not happy with the outcome, which as I know from ending is 
an unfortunate byproduct of making loans.
    The thing that is important about 2022, as I mentioned 
earlier, is that the opportunity for seeking loan modifications 
begins to toll because the original notes for 93 percent of the 
loans were originated in 2020 and the 24-month window will 
toll.
    Mr. EVANS. Has money been set aside for applications that 
have been approved but not received funding?
    Mr. KELLEY. Yes. So there are approved and obligated 
borrowers who have not executed closing at their own 
discretion. And they will continue to have the opportunity to 
close the loan or not close the loan, in which case we will 
cancel it. But in all cases, we began communicating to the 
outstanding applicants for loan modifications, 
reconsiderations, and appeals beginning in February, and 
notified them directly through email directly to their account 
and spoke directly through call center and loan officer 
response to the actual borrowers' request.
    Mr. EVANS. Will those in submitted status be able to 
receive funds?
    Mr. KELLEY. So it depends on what you mean in terms of 
submitted, Congressman Evans. So I apologize. Are you referring 
to new applications or loan----
    Mr. EVANS. Those submitting a status. Those submitting a 
status. Will they be able to receive funding?
    Mr. KELLEY. So, yes. So, all of the submitted eligible 
reconsideration, appeal, and loan modification requests that 
were received on or before May 6th, totaling roughly 61,000 
requests will have been processed, and those that are eligible 
for funding in the case of a loan modification increase, which 
is roughly 40,000 in that bucket, have received notification. 
And those funds will be obligated for them to close today or at 
a later date at their discretion.
    Mr. EVANS. I thank you, and I yield back, Madam Chair. 
Thank you very much.
    Chairwoman VELAZQUEZ. The gentleman yields now.
    I now recognize the gentleman from Texas, Vice Ranking 
Member Mr. Williams, for 5 minutes.
    Mr. WILLIAMS. Thank you, Madam Chairwoman, and Ranking 
Member Luetkemeyer.
    Mr. Kelley, I have three questions. I have got a bunch of 
questions. But I would appreciate you keeping your answers to a 
quick yes or no on these first three questions.
    Do you believe the SBA, regardless of who is in the White 
House, should fight for lower taxes, less regulations, and 
advocate for Main Street America?
    Mr. KELLEY. I absolutely believe that the SBA should fight 
for small businesses.
    Mr. WILLIAMS. Regardless of who is in the White House?
    Mr. KELLEY. Correct.
    Mr. WILLIAMS. Do small business owners prefer capitalism 
over socialism?
    Mr. KELLEY. I cannot speak for small business owners.
    Mr. WILLIAMS. Do you think that capitalism built the 
country, not socialism that we see today in the Biden 
administration? Do you think that when you go out and see small 
business owners like myself that they say we would much rather 
have capitalism than socialism? I mean, are you a capital?
    Mr. KELLEY. Am I capitalist? Yes.
    Mr. WILLIAMS. Okay. But do you think Main Street America 
wants that over socialism?
    Mr. KELLEY. I cannot speak for all of Main Street America.
    Mr. WILLIAMS. Okay, well, you work for the SBA, but okay, 
that is fine.
    The other question would be, have you ever owned a 
business? Because we were talking about your private sector 
experience. The Chairman was talking about that. Have you ever 
owned a business and started it with your capital and met a 
weekly payroll?
    Mr. KELLEY. No, I have not.
    Mr. WILLIAMS. But you still feel like you see the issues 
that face small business even though you have not had that 
experience?
    Mr. KELLEY. For 6 years between the Obama administration 
and the Biden-Harris administration I built a lending practice 
for asset-based lending and business acquisition loans and made 
a half a billion dollars of loans available for small 
businesses. Yes, I feel pretty fluent in the issues related to 
small business.
    Mr. WILLIAMS. But it is also different when you have your 
own capital behind it. And we have some people in this 
administration who have never owned a business either. That is 
a problem we have.
    So as a small business owner myself, I still own a business 
in Texas, I have about 300 employees that work for me for over 
50 years. I can tell you that President Biden's SBA is out of 
touch with Main Street America. Inflation continues to 
skyrocket as Americans struggle with the rising cost of gas and 
groceries and you see that even from your perch how inflation 
is choking small business, not to mention that America's labor 
force participation rate is close to a 45-year high leaving 
small businesses understaffed and on the verge of shutting 
down.
    Meanwhile, through all this, the administration's fiscal 
2023 budget requests millions of dollars under the SBA's 
lending program to go towards climate initiatives. We have got 
businesses out there begging to be able to participate, stay 
open, and you are out there talking about climate initiatives. 
It is shocking to me that the SBA would request more taxpayer 
dollars for climate change in lieu of directing money to 
provide businesses with access to capital. And I can tell you 
that I know businesses in my district in Texas, they are 
concerned about their ability to compete in the future and are 
looking to SBA to be a nonpartisan resource that has their best 
interest in mind and they are not worried about climate change.
    So Mr. Kelley, as you talk with small business owners like 
me, what is the bigger concern today, climate change or 
inflation?
    Mr. KELLEY. Well, specifically for the Natural Disaster 
Loan Program which we have talked about here, the fact of the 
matter is that the number and the impact of natural disasters 
has been on the rise. And so what the budget refers to is the 
fact that we are going to continue to need to make both 
consumer loans for property damage deltas that are not made up 
by their private insurance to put homeowners back in their 
homes, as well as small businesses for working capital once 
they have been leveled by a tornado, an earthquake----
    Mr. WILLIAMS. Of course, this is before they have been 
leveled by a tornado or earthquake. They just want some help.
    Mr. KELLEY. Yes.
    Mr. WILLIAMS. And you are out there absorbing a budget full 
of climate change which people are not interested in right now 
that takes cashflow away from those businesses.
    Mr. KELLEY. So for the businesses that are wrecked by the 
natural disaster, that is an opportunity for them to get back 
on their feet. And our core programs, for example, during the 
Obama era, we leveraged the 7(a) program to do a dealer floor 
plan financing report. So you own an auto dealership. We stood 
in when the dealers were being closed and shuttered when there 
was the potential of the auto manufacturers going down and 
provided 7(a) capital. That was done through community banks to 
support auto dealers to make sure that they could get access to 
floor plan financing.
    So you are right; we have two programs. One that is an uber 
credit not available elsewhere, which is to say when a business 
owner is at the worst moment in their life, we stand in to help 
them.
    Mr. WILLIAMS. Okay.
    Mr. KELLEY. And for the core main street businesses, we 
provide working capital, owner-occupied real estate and 
business acquisition----
    Mr. WILLIAMS. Do not forget small businesses that need 
operating capital before the big storm as you refer it.
    Mr. KELLEY. Absolutely.
    Mr. WILLIAMS. That is ready capital they can employ people 
with and create more jobs.
    Chairwoman VELAZQUEZ. Time has expired.
    Mr. WILLIAMS. As opposed to something down the future.
    Thank you. I yield my time back.
    Chairwoman VELAZQUEZ. The lady from Kansas, Ms. Davids, is 
recognized for 5 minutes.
    Ms. DAVIDS. Thank you, Chairwoman. I am glad we are having 
this hearing today. As the Chair on the Subcommittee on 
Economic Growth, Tax, and Capital Access, I am really glad that 
we are taking time to work with the Office of Capital Access.
    This hearing comes, of course, at a critical time. Just 
recently, the SBA announced that the COVID EIDL funds have been 
exhausted leaving a lot of business owners, particularly in the 
Kansas 3rd frustrated and disappointed. I know my office has 
been working with a lot of small businesses that have had 
trouble getting their EIDL applications processed in a timely 
manner. Whether that is because of the IRS or SBA processing 
delays, eligible small business owners have been extremely 
frustrated to discover that after months of paperwork and back 
and forth with government agencies that there is not funding 
available for them and that is, of course, not through any 
fault of their own.
    I know Mr. Evans and a couple of other people have touched 
on this. I want to make sure that I have a clear understanding 
of the process going forward. When you were responding to Mr. 
Evans's question, I believe that you said that even in 
instances of applications being--I guess I will give a hypo. If 
a business applied and was inappropriately flagged for fraud 
and then ultimately their application is determined to be 
eligible, there are funds available for those applicants; is 
that correct?
    Mr. KELLEY. There can be funds made available. There are 
not currently any funds available for that. What is important 
to note is that in your hypothetical, that particular borrower 
had been seeking that particular reconsideration and had over 
14 months to seek the loan increase. So what I can say is that 
for 98 percent of the applicants, we respond to those requests 
in less than 30 days, and the funding for the loan modification 
increases, the average size of which is about $100,000 to 
$200,000 takes place in less than 3 weeks. And for the $2 
million loans, it takes about 5 weeks to process. So as of May 
6th, the total inventory of those challenges, and I want to say 
to everyone on the Committee and you, Representative, if there 
are any individual issues that you want me to chase down, I am 
happy to do that. But in terms of the workable inventory, we 
did go through all of those and made sure that those folks were 
funded.
    Ms. DAVIDS. Okay. And is that regardless of whether we are 
talking about IRS delays or folks being inappropriately flagged 
for fraud? Going forward, I just want to make sure that 
everyone has been--because we will definitely follow up with 
any constituents from the Kansas 3rd who have seen these delays 
who have been extremely frustrated with the back and forth or 
lack thereof. I just want to make sure that what you are saying 
is that your understanding is that you have essentially 
exhausted all of the applications whether somebody was 
inappropriately flagged for fraud or went through the delays 
with the IRS that all of those applications have been processed 
and anybody who has been approved has already received their 
funding?
    Mr. KELLEY. Yes. And what I am also saying is that when 
Members send us constituent challenges it falls into two 
buckets. Either they did not file in 2019 and they are seeking 
an increase for more than a year because in 2020 they were able 
to get the advance as well as the loan up to $150,000 without 
needing to validate taxes, which of course is the subject of 
all of the audit reports. For the 2021 population, the 300,000 
have had the year to seek new applications. New applications 
ended on 12-31. And for the second predominant reason is 
amended returns where the increase request that the borrower is 
seeking is higher than the previously stated taxes. And so in 
those instances there is interrogation on the part of the loan 
officer and the team leads as there should be to determine 
that.
    With respect to fraud per se eligibility, those issues are 
dealt with pretty rapidly with respect to, you know, as soon as 
the flag fires and it is an automated flag. So it is most 
likely that the constituent's issue is related to taxes.
    Ms. DAVIDS. Okay. All right. Well, thank you. And we will 
follow up.
    Thank you, Chairwoman. I yield back.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    Now we recognize the gentleman from Pennsylvania, Mr. 
Meuser, Ranking Member of the Subcommittee on Economic Growth, 
Tax, and Capital Access.
    Mr. MEUSER. Thank you very much, Madam Chair. And I thank 
the Ranking Member, Mr. Kelley. Good to be with you.
    So do you think that the expertise and direct community 
ties for private lenders working with the SBA for the 7(a) loan 
program is a successful initiative, a successful partnership?
    Mr. KELLEY. For $370,000 loans, which is the average loan 
size for owner-occupied real estate and business acquisitions, 
which is three-quarters of the loans originated each year, yes, 
absolutely. The 10-year amortization for business acquisitions, 
there is not a better product.
    Mr. MEUSER. But you actually think SBA is better off doing 
many of those loans on its own?
    Mr. KELLEY. I think that we need to exhaust all 
distribution channels across the full spectrum of borrower 
need.
    Mr. MEUSER. The EIDL loan had such fraud and PPP had such 
minimal fraud. You are a private sector guy. Why in the world 
would you want the SBA that is understaffed. People throughout 
Pennsylvania anyway are working real hard, doing a decent job 
with what they have available to them, they do not have the 
tools to do it a high level of excellence, and you are saying 
that you want to take on the direct lending? That sounds crazy 
to me.
    Mr. KELLEY. Well, I would point you to the State of North 
Dakota, which has had a public bank for over 102 years. The 
Kansas City Fed recognizes that it has the highest consumer and 
business borrower deposit density amongst----
    Mr. MEUSER. I completely disagree. Completely disagree. 
That does not make any sense. Look at the EIDL funding and the 
PPP.
    Mr. KELLEY. There is a public bank----
    Mr. MEUSER. I will reclaim my time. Also, the idea that you 
are spending millions of dollars as Mr. Williams just brought 
up for climate change? Well, have you walked through a few 
small businesses lately?
    Mr. KELLEY. Yes.
    Mr. MEUSER. All right. They have got a lot of issues taking 
place.
    Mr. KELLEY. Yes.
    Mr. MEUSER. Okay? And access to capital is a real important 
one. And you are focused on the wrong things. I mean, why would 
you be focused on voter registration? Why did you put your hand 
up first when President Biden said, hey, let's turn federal 
agencies into voter registration arenas. Why would you say, 
hey, we have got nothing else to do. We will do some voter 
registration for you. Does that make sense to you?
    Mr. KELLEY. Allowing people to vote, yes.
    Mr. MEUSER. That is not the function of the SBA. Okay? 
Yeah, it is nice if you hand out ice cream, too, but that is 
not what your role is. It is absolutely remarkable and it does 
not make any sense that you would not bring some focus to this 
important authority that you have and advocacy. But you do not 
see it that way.
    Mr. KELLEY. I definitely bring a focus every day to the 
access to capital issues. So right now working on the full 
spectrum of----
    Mr. MEUSER. And I can see why you are not in the private 
sector.
    Let me ask you this.
    Mr. KELLEY. I spent the bulk of my career in the private 
sector, Congressman.
    Mr. MEUSER. You know, well, then why would you be expanding 
your duties while the main function is running so poorly? Okay? 
EIDL loans have run out; right? You are aware of that, the 
funding for EIDL loans?
    Mr. KELLEY. Yes.
    Mr. MEUSER. I have got a lot of businesses that were 
counting on those loans. If we did not have billions, $80 
billion in likely fraud, those loans would not have run out. If 
they were done in partnership with community banks knowing the 
customer, that would not have happened. Because look at the 
PPP. So I have small businesses in need of capital, and 
instead, we sent it to fraudsters, okay, because you took it on 
yourself and you want to expand that. Okay? Can you understand 
where I am coming from that I have some difficult in that as 
this Committee has oversight of your work?
    So on to the EIDL funding. Do you have any plans for--what 
is the plan for bringing some additional funding for the EIDL 
lenders, for the EIDL loans?
    Mr. KELLEY. So we will work with this Committee 
appropriators and the Office of Management and Budget to 
properly fund the program. With respect to the EIDL program in 
particular, there is no doubt that there is going to be 
continued demand for a 3.75 percent fixed rate loan with a 30-
year amortization period, but there are other options in the 
marketplace as you and other Members have referenced that those 
borrowers are going to be able to access. And one of the key 
tools for that will be the 7(a) product for which thousands of 
lenders----
    Mr. MEUSER. Wrong answer. I am just looking for when it is 
going to be funded so these small businesses can get the loans 
that they have been counting on.
    Just real quick. The 504 Express Pilot program that was 
supposed to be done December `22, I know you guys are busy, but 
when will that be implemented? When will that finally be 
created and done?
    Mr. KELLEY. Shortly. So the regs will be promulgated in 
short order.
    Mr. MEUSER. I yield back, Madam Chair.
    Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
    We recognize the gentlelady from Pennsylvania, Ms. 
Houlahan, for 5 minutes.
    Ms. HOULAHAN. Thank you, Madam Chair. Just making sure that 
you can hear me okay?
    Chairwoman VELAZQUEZ. Yes, we can.
    Ms. HOULAHAN. Terrific.
    And thank you, Mr. Kelley, so much for your testimony.
    The SBA, my questions have to do with some inadvertent 
consequences, unexpected, unintended consequences. The SBA 
estimates that over 300,000 PPP borrowers have in good faith 
made miscalculations. That miscalculations have been made 
either by the borrowers themselves or by the lending 
organizations. On average, they have ended up with excess loan 
amounts in errors of around $12,403, which of course poses an 
unexpected and potentially crippling debt for many of our 
borrowers despite in many cases the loans being used and spent 
on what would be considered forgivable uses. So in other words, 
the SBA's current process had a simple technological inputter 
error occurred could impact or would impact some of our 
borrowers for years to come because of that mistake. We really 
need, I believe, to deliver on our promises to those borrowers 
that these loans can be turned into grants if funds were spent 
on forgivable loans or for forgivable reasons.
    So my question to you, sir, is will the SBA commit to 
making good on that promise and to helping these borrowers to 
get full forgiveness?
    Mr. KELLEY. Yes. We will commit to working with you and 
your staff and the Committee to trying to figure out the right 
path forward for those particular forgiveness borrowers.
    Ms. HOULAHAN. Excellent. I very much look forward to 
working with you and my staff working with you as well.
    Real quick. Do you think that there is a legislative issue 
here or is there something else that we can understand going on 
here?
    Mr. KELLEY. I would defer to take this offline because 
while I am a lawyer, I am not a particularly good one and I do 
not want to speak out of turn on the authorizing statute.
    Ms. HOULAHAN. Okay. I look forward to that conversation.
    My second question is somewhat related. As the PPP program 
was also rolled out, the program rule changes were actually 
quite rapidly changed in some cases because of just the crisis 
that we were in and making sure that we were being as expedient 
as possible. The elimination of the agency's grace periods 
contributed to additional errors such as improper documentation 
that was submitted by both borrowers and lenders again. So my 
question again is does the SBA have any plans to be able to 
retroactively review those kinds of cases where the program 
rules changes may have also contributed to good faith errors?
    Mr. KELLEY. Yes. So, it is important to note that there 
have been 10.1 million out of the 11.4 million loans forgiven. 
Roughly 65,000 have been purchased and there are about 4,000 
current appeals. The appeals process is for those denials, full 
denials that you are referencing. And in the case of partial 
denials, we do have a reconsideration process that we make 
available for those borrowers.
    Ms. HOULAHAN. And is there, again, anything that I can be 
helpful or this Committee can be helpful in doing to help make 
sure that we, again, in the case of people who are just 
operating in good faith with the rules, very flexible and very 
dynamically changing understandably, is there anything that we 
can be doing to be helpful there?
    Mr. KELLEY. Yeah. I think you have highlighted some areas. 
I am happy to work with the Committee and any Members on the 
areas regarding errors and the calculation of the payroll 
amount. We do see that in terms of overages as you referenced 
and one of the challenges that creates for the borrower. So 
absolutely, I am happy to work and try to solve this and get to 
the bottom. And I think we should all feel good, and I give the 
Committee and obviously your colleagues in the Senate a lot of 
credit because we kept the faith with borrowers and lenders. 
These loans were supposed to be forgiven, and if the lender 
made them, they would have the option to be forgiven. And by 
and large that has been executed. But you point out an 
important group that might be at the margins that we should 
work on.
    Ms. HOULAHAN. Thank you. I appreciate it. I have very 
limited time left but I would love to take for the record a 
question that is always pressing on me which is the 
accessibility of capital to the women-owned small businesses. 
The businesses that are women-owned have loan sizes that are 41 
percent lower than those that are owned by men. Furthermore, on 
average, the credit score for women-owned businesses tends to 
be much lower, 14 points lower. I only have 16 seconds left and 
so probably no opportunity for you to answer but would love for 
you from the record to be able to talk to us about what we are 
doing, what your office is doing to level that playing field 
and what can Congress do to be supportive of those efforts.
    And with that, Madam Chair, my time has run out and I yield 
back.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    Now we recognize the gentleman from Florida, Mr. Donalds, 
for 5 minutes.
    Mr. DONALDS. Thank you, Madam Chair.
    Mr. Kelley, thanks for coming in.
    A real quick question. This is to piggyback off the final 
question from Mr. Meuser dealing with the 504 Express program 
and when essentially the regs were going to be written for this 
program. You said shortly. What does that mean?
    Mr. KELLEY. It means in the next 30 days or so in terms of 
being published.
    Mr. DONALDS. Okay. So in 30 days that should be out there 
small businesses can take advantage of this?
    Mr. KELLEY. Yes.
    Mr. DONALDS. Okay. All right. I wanted to get some more 
clarification because words have meaning here in our process.
    Real quick question. So what is the impact in your view of 
the rising interest rate environment on the 7(a) program, on 
the 504 program? Obviously, the Fed is on the move. My view, 
they are late to the game. They should have done this, should 
have been doing this earlier considering the inflationary 
environment. But what is your view of the impact of rising 
interest rates on those programs?
    Mr. KELLEY. Well, it makes the product that much more 
valuable for the small business borrower that receives it. So, 
for example, you referenced 504. That is a fixed rate tool. So 
obviously, borrowing with money today and paying back later is 
an advantage with a fixed rate note. And while the rate has 
gone up 50 basis points in the last couple of weeks to a point 
on the baseline rate, overall, the base rate is still low 
historically. So the other advantage of these particular 
products is that they allow for longer amortization periods 
which lowers the monthly debt service associated with the debt 
which means that there is less cash going to the debt. And for 
companies that have to pivot, companies that are looking for 
growth, owner-occupied, excuse me, business acquisition tool in 
the 7(a) program for which 30 percent annually loan proceeds go 
to is an excellent opportunity to buy a business with little to 
no money down in the particular program.
    Mr. DONALDS. Let me ask you this question because you 
mentioned your private sector experience. I have to go into 
another hearing. So real quick, just can you give me a quick 15 
seconds on what your private sector experience was?
    Mr. KELLEY. Sure. I worked for a community bank based on 
Wilmington, North Carolina that makes loans nationwide to small 
businesses for about 6 years. Prior to the Obama 
administration, I worked for Schulte Roth and Zabel, which is a 
law firm in New York City. Worked mostly on M&A as well as 
structure finance. Prior to law school, I worked for a for-
profit educational company that helped children with ages 4 to 
14 with enrichment and remediation. That was a retail store. I 
ran a P&L for that. And then worked for Chubb Insurance 
Company, as well as Merrill Lynch in the Muni-bond division in 
the late `90s.
    Mr. DONALDS. Okay. So let me ask you this question. So, we 
have roughly 30 million small businesses in the United States. 
Capital is basically required by everybody. What is the 
capability of SBA through direct lending to actually take what 
part of the market share do you anticipate SBA can actually 
access?
    Mr. KELLEY. So I would reference the previous 
congresswoman's point about women-owned borrowers and earlier 
references to startups.
    Mr. DONALDS. Hold on, Mr. Kelley, I have got a minute 33. 
If you guys are talking about doing direct lending, of all the 
small businesses that exist that are looking for capital, what 
percentage of overall small businesses--you guys have had to do 
some analysis on this--just what is the percentage? Ten percent 
of small businesses? Twenty-five percent? Thirty percent? What 
do you think SBA's real capacity is and capability?
    Mr. KELLEY. So, I do not know the total capacity. What I 
can say based on market demand is that the hardest challenge, 
and Chairwoman Velazquez referenced this in her opening 
statement, there has been a dearth or decline in loans 
particularly under $50,000.
    Mr. DONALDS. You do know why that is; right? We have shut 
down community banking in the United States through Dodd-Frank 
regulation. In my congressional district we had 75 community 
banks when I was in community banking. Seventy-five. Now we 
have five. It is 10 years, 15 years. From 75 to five. That is 
what Washington has done.
    So my question is, and again, because now I am down to 25, 
28. My question is very, very simple. If SBA was going to go 
out and do direct lending, essentially create a federally 
controlled bank, if you were going to out in the private 
markets and make your own bank, you would have to have an 
understanding of what percentage of the market you were going 
to be able to anticipate counting on as customers. So what 
percentage of the overall market does SBA have the capacity to 
actually take on as direct lending customers?
    Mr. KELLEY. I assume you are referencing to this 
Committee's language that was put in the Build Back Better bill 
with respect to direct lending. If that is the case, in 
particular what that language called for, and I think it was 
appropriate, was for funding loans under $150,000. And what the 
language sought to do is to create parity between the SBA's 
direct loan for which the agency has direct lending authority 
today and has had it historically. To make small dollar loans 
for which there is a gap and there is an efficiency challenge 
recognized by all----
    Mr. DONALDS. The only thing I would argue is----
    Chairwoman VELAZQUEZ. Time has expired.
    Mr. DONALDS.--I do not think the SBA really has a clue of 
what its capacity really is.
    Chairwoman VELAZQUEZ. Time has expired.
    Mr. DONALDS. That is my point.
    Chairwoman VELAZQUEZ. The gentleman from Minnesota, Mr. 
Phillips, is recognized for 5 minutes.
    Mr. PHILLIPS. Thank you, Madam Chair.
    Let me first associate myself with the remarks of my 
colleague from Florida relative to community banking. I agree. 
I do not want to see more erosion. I want to see more 
propagation. I have seen the great value they bring to our 
communities and share your concerns.
    Mr. Kelley, let me start with you and say thank you. There 
is a lot you could be doing other than serving the public in 
this capacity. The SBA in my estimation is a uniquely American 
institution in supporting entrepreneurship and its ecosystem. 
And I am grateful. We have an obligation to provide oversight 
and accountability, and we all have concerns about fraud, about 
some of the programs, but I want to thank you. A colleague who 
was so critical of the SBA just moments ago, according to news 
reports, secured a million dollar plus PPP loan. I want to say 
thank you on behalf of his enterprise and the hundreds of 
thousands that you helped save. And say thank you most 
importantly on every one of those little enterprises' behalf.
    With that said, there is a lot SBA could do better. It 
could do better under Republican administrations and under 
Democratic administrations I think we would all agree. But let 
me start by just affording you a few moments and express to us 
what do you think we could do better, the SBA, you, your 
associates, relative to the provision of capital to small 
enterprises?
    Mr. KELLEY. Thank you. So, the single most important thing 
that I think we can do better is build off of what worked 
universally within the PPP program for our lending 
intermediaries, which is to support a simplified product that 
can leverage technology, that can lower the cost of new 
customer acquisition, as well as the controllable non-interest 
expense associated with making a loan, and to make available 
the secondary market so that the guaranteed portion of that 
loan can help banks lend beyond their lending limit for an 
important customer or leverage the secondary market for 
liquidity and quarterly earnings.
    So to do that we need to also build off of the expansion of 
distribution channels. So as I mentioned earlier, 600 community 
financial institutions supported $30 billion more or less of 
PPP loans. This is particularly important because the average 
loan size across that $30 billion was roughly $40,000. That 
particular amount is going to be absolutely critical when we 
think about the 5.4 million new startups that happened in 2021. 
For those new startups, if they go to the bank that I worked 
for or any other bank, they will obviously be in their first 
year or two of cashflow. Typically, community banks rely on the 
trailing 36 months to validate income from tax returns. So, as 
a result, there is a market externality related to startups and 
it is one of the most challenging aspects for any lender, 
whether you are a community financial institution or a large 
top four depositor institution. So, I think the things that we 
can do focus on making the rules simple. I commend the 
Committee across multiple programs for simplifying, for 
example, some of the eligibility criteria for those programs 
with respect to affiliation, criminal background checks, those 
things. I think we should build off of that.
    With respect to the credit criteria for PPP, it was a 
formula. And so it lent itself to speed, and as a result, we 
saw huge participation within the first $385 billion from 
community banks.
    As I mentioned earlier, it is a fact that the State of 
North Dakota has a public bank for the last 102 years. It lends 
$22 billion currently of assets alongside its community banks. 
And in PPP, the largest lender, community bank lender in the 
State of North Dakota made 1,000 loans with the same amount of 
branches as a top four depository institution, same state, but 
they only made 100 loans. So community banks are thriving as 
measured by the Kansas City Fed in terms of consumer deposits 
and business deposits.
    So I think that we should think about, and we mentioned it 
earlier in the Committee, public-private partnership means both 
halves of those equations. And the reason that community banks 
are struggling and declining is because of the pressure that is 
being put on them by the products offered by the top 25 
depository institutions which has led to a decline in their 
deposits and it has made it very difficult to compete in terms 
of working capital options for small business borrowers that 
have high average daily deposit account numbers.
    So, the opportunity to do what the----
    Mr. PHILLIPS. My time is expired.
    Mr. KELLEY. I am sorry. I got passionate about that.
    Mr. PHILLIPS. No, and I wanted to afford you time, and I 
hope we can work together with you to help realize that vision.
    With that I yield back. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Wisconsin, Mr. 
Fitzgerald, for 5 minutes.
    Mr. FITZGERALD. Thank you, Madam Chair.
    Mr. Kelley, so on July 28, 2021, SBA made changes to the 
PPP forgiveness by establishing the Direct Forgiveness Portal. 
So there has been discussion already amongst Committee Members 
on the difference between the PPP loans that obviously were 
part of the files that were controlled and initiated by local 
banks compared to the SBA direct loans. So, you know, there was 
an experience there that I think there was a little bit of talk 
about. And I get it. We are trying to get the money out the 
door, get it out as quickly as possible, and there were a 
couple of different avenues that that could happen under.
    But the problem I think now is that there was very little 
communication between the SBA and the banks and credit unions 
on the forgiveness part of it. So because I am in the district 
in the 5th congressional and I still hear about this now, that 
this is an issue that was kind of hanging out there and had not 
been dealt with directly. Do you guys still believe that what 
was put in place and the due diligence or the underwriting 
related to that is still relevant? Or should this be revisited 
now and include the credit unions and the banks in this full 
discussion about forgiveness?
    Mr. KELLEY. So I guess could you help me? I am having a 
hard time. So with respect to forgiveness, so as I mentioned 
earlier, 10.1 million loans have been forgiven, 65,000 have 
sought purchase. Currently, we have an inventory of manual 
reviews of roughly 40,000, of which there are a total of 4,000 
that exceed the 90-day window. Ninety percent of that number 
stays in inventory for less than 15 days. Of the 4,000 over 90 
days, all of them have hold code related to eligibility issues 
that we are interrogating. So I am not aware of challenges with 
respect to forgiveness.
    Mr. FITZGERALD. They are basically making the case that the 
fraud detection was not significant enough in relationship to 
the SBA compared to what they were already doing. So right now 
it has created kind of two different categories of PPP loans 
that are out there, and I think there are a lot of credit 
unions and banks that are saying we simply kind of do not know 
where SBA is going with all this.
    Mr. KELLEY. So I am happy to take offline to better 
understand the issue. My experience with lenders, and we just 
recently attended the National Association of Guaranteed 
Lenders, and there were about 800 different community banks 
represented. There was not a reflection that forgiveness was 
having problems. With respect to direct forgiveness 
specifically, we add new banks each week even to this day. We 
are over 1,500 representing 2.5 million loans under $150,000 
that we are processing. And on a daily basis the Direct 
Forgiveness portal is responsible for roughly 55 percent of the 
inbound intake. What remains outstanding of the 11.4 million 
loans is roughly a million loans from the 2021 population for 
which the 10 months from the end of the forgiveness period is 
about to toll, and we saw an uptick last summer at this time 
related to the 2020 population. But I am definitely happy to 
hear and will talk to any lender that is having a challenge 
specifically with forgiveness to assist.
    Mr. FITZGERALD. Very good. I will follow up with you on 
that.
    Let me just shift gears real quick. So we just introduced 
H.R. 7678, American Small Business Competition Act. It would 
increase loan amounts under both 7(a) and the 504. I think this 
is especially important as kind of the small business costs 
continue to rise with the goods and services and what we are 
seeing kind of with the economy right now. Have you guys looked 
at the 5 million and whether or not that is a sufficient loan 
max in this environment that we are operating in now as we 
continue to try and get the economy in a better place than 
where it is currently?
    Mr. KELLEY. Yes, Congressman. I am aware of the bill and 
the language. And there is a continuum or spectrum of small 
business capital needs that spans from the tying loans that we 
were referencing earlier where there is a gap and what the 
language of your bill references which is, for example, 
specific to supply chain financing today, small businesses that 
are seeking to purchase in bulk are often facing a liquidity 
challenge because they need to front the money to the 
suppliers. And the increase in the amounts in order to be rank 
ordered by that supplier is necessary. For the banks, that 
proposition is not one that they are excited about because they 
are lending money today in hopes of getting an invoice at a 
later date. So I do think there are opportunities for us to 
work together to support working capital. Largely, the 4,500 
community banks focus on residential mortgage and commercial 
mortgage loans and they have stepped out of the line of credit 
or asset-based lending which is the type of lending that is 
particularly needed when you are financing growth and supply.
    Mr. FITZGERALD. Thank you. I yield back.
    Chairwoman VELAZQUEZ. Thank you. The gentleman's time has 
expired.
    Now we recognize the gentleman from Maine, Mr. Golden, for 
5 minutes.
    Mr. GOLDEN. Thank you. I quickly want to revisit something 
that was brought up earlier by one of my colleagues. I believe 
there was an executive order having to do with agency-side, 
department-wide working on issues of voter access. And so I 
think some people were talking about SBA kind of throwing their 
hand up and I just do not think that is quite the case. I think 
it is important that people understand that you are 
appropriately focused on your mission but you do have an 
obligation to be responsive to executive orders. I am sure you 
would agree. So totally fair for Congress to voice opinions 
about perceived bad executive orders no doubt but I think that 
should be appropriately targeted at the White House and maybe 
as an associate administrator of your office you are just being 
responsive in the way that you have to be. But somewhere in the 
Cabinet there is someone I am sure who was pushing that EO but 
it would not have been your office. So I just wanted to clarify 
that for everyone out there. I agree with the sentiment of my 
colleague though that your office should be focused on capital 
access. I think you are doing a good job demonstrating your 
grasp of the work that you do, so thanks for being with us here 
today.
    I want to talk very locally about a constituent that I have 
back home but I think that their situation is very similar to 
many others around the country. So my constituent was working 
on an EIDL application. They had been working with my office 
for months to get SBA to complete a review of their 
application. And there were difficulties with midstream changes 
to the applicant's personnel and then with delays at the IRS. 
SBA's processes, however, also contributed to delays. So the 
applicant reported to us several times that responsibility 
within SBA for their materials changed frequently. And it was 
evidenced by redundant requests for information that they were 
asked to provide to a number of different SBA employees. And 
these requests seemed to stem from confusion about the 
applicant's organizational structure which they were able to 
clear up with certain SBA contacts only to then have confusion 
reappear when they encountered new contacts at SBA. This led to 
extended periods in which there was little progress made in the 
review.
    As of yesterday, neither the applicant nor my office is 
able to determine whether their application will meet the 
criteria for SBA to complete its review as laid out in SBA's 
May 13th FAQ. We were informed recently that its status in 
SBA's system was I guess labeled as Not Interested, which is 
apparently being used as a holding pattern for certain 
applications. But it is unclear how this status maps to the 
review stages laid out in the May 13th FAQ. So, while the 
applicant has finally received an IRS transcript, it is not 
clear whether there are remaining documentation gaps.
    And given all this, including the fact that the application 
was subject to processing delays by SBA and the IRS, it seems 
unfair for them to miss the opportunity to at least have a full 
review of their application. So I would like to work with you 
and your staff to, first of all, determine whether this 
application is in one of the stages that would make it eligible 
for a completed review; and then second, if the application is 
not on track to receive a full review, is there any way to get 
this on track? Or are there other ways in which your office can 
help them get access to the capital that they were looking at 
and that they clearly need? And of course, in a way that will 
work for them, similar to the EIDL program. It obviously had 
some very good loan terms that they were interested in, but if 
it is not this, are there other opportunities? And I will 
follow up with your staff to make sure that you get more 
details on the specifics here.
    Could you just speak a little bit about the process for 
constituents like this across the country? What kind of 
flexibility is out there and how long is this going to take for 
your office to figure out?
    Mr. KELLEY. Well, specific to the example, yes, I am happy 
to take that offline and get directly into that. Broadly 
speaking, it is no doubt the case that the worst thing you can 
do in a business experience or a customer service experience, 
excuse me, is to set the wrong expectations on the outset of 
the relationship. Unfortunately, when the COVID EIDL program 
was rolled out in 2020, 3.6 million borrowers, 93 percent of 
the total asset portfolio, were able to obtain $150,000 with 
none of the credit criteria that is normally applied either 
commercially or in this public program.
    So when they came back in for loan modifications which this 
administrator made available, the process was by definition 
going to be more arduous because we were actually underwriting 
the eligibility you referenced in your remarks as well as the 
credit criteria. So, it is unfortunate for sure and we have 
experienced it with those borrowers. So I am happy to work 
offline to address the issue.
    Chairwoman VELAZQUEZ. The gentleman's time has expired.
    Now we recognize the gentleman from New York, Mr. 
Garbarino, for 5 minutes.
    Mr. GARBARINO. Thank you, Madam Chair. Mr. Kelley, thank 
you very much for being here today.
    I wanted to follow up a little bit, build off of actually 
what the previous Member was asking.
    So your office oversaw the COVID EIDL program; correct?
    Mr. KELLEY. Yes.
    Mr. GARBARINO. The application process?
    Mr. KELLEY. Our office took over the program in July of 
2021. Yes.
    Mr. GARBARINO. And so if something moved from the pending 
status to I think your office you used something internally, 
obligated. That means if the loan was obligated that means it 
was either going to be funded or was being funded. Who 
determined, is that your staff or your office that determines 
if something hit the obligated status?
    Mr. KELLEY. Yes.
    Mr. GARBARINO. so when you announced, or your office 
announced, or SBA announced that the EIDL money was done, there 
was no more, if something was not in obligated status at that 
point, did that mean they could not get any money? There was no 
more money available for them; right?
    Mr. KELLEY. At that particular moment on May 5th, yes. 
However, as I referenced earlier in my testimony, there were 
around 61,000 workable files across people seeking appeals to a 
previous decline, reconsiderations of a previous decline, and 
then loan modification increases. And we were able to process 
all of those that were eligible to be approved and be obligated 
funds. And we have notified those customers directly from the 
loan officer and then the folks that are obligated have the 
right at their discretion to close the loan. And they will have 
sufficient time, 180 days or more to execute that.
    Mr. GARBARINO. So they might not have been obligated but 
they were appealing it or there was reconsideration. Were there 
any applications that were not being appealed or reconsidered 
with their new applications that were not obligated that have 
since become obligated? Like could anything happen through a 
congressional inquiry or something that would have moved 
something that was not obligated on that date to obligate it if 
it was not a reconsideration?
    Mr. KELLEY. Yes. So from the period of time from May 5th, 
May 6th, up until May 16th, your office perhaps and certainly 
others, have made us aware of folks who were in the statuses 
that your question refers to. And we have dispositioned each of 
those instances. And so that might lead to an approval in being 
obligated. It also can lead to another decline for the reasons 
that they were previously declined. For example, 
reconsideration. It is important to note that reconsiderations 
for the 24-month period, 8 out of 10 times that someone seeks a 
reconsideration, they are declined. So it is also important to 
note that because of the delta between what was required for 
the 3.6 million loans originated in 2020 versus the roughly 
300,000 plus originated in 2021 that required tax income 
verification, that those folks from 2020 seeking a loan 
increase were denied the increase they were seeking 50 percent 
of the time. So it is absolutely the case that the experience 
has been frustrating. But as I mentioned to the previous 
Member's question, when you set a different set of program 
expectations and 93 percent of the loans are originated under 
different expectations, that is, of course, going to create 
that scenario.
    Mr. GARBARINO. Okay. So nothing can be reconsidered now. If 
an application by May 5th, they were not obligated, everything 
was pretty much denied; correct?
    Mr. KELLEY. Yeah. I think----
    Mr. GARBARINO. Well, and the reason I am asking is I have a 
couple constituents that had applications in. They were not 
obligated. They never had an original determination. They were 
now denied because the funding was out but they were sent a 
letter asking if they would like a reconsideration. So there is 
no extra money for reconsideration of loans that were denied; 
correct?
    Mr. KELLEY. There can be money through cancelations but it 
is more likely the case that the limiting factor for a 
particular borrower seeking an increase at this late stage, and 
keep in mind that increases have been available for 14 months.
    Mr. GARBARINO. But if they were denied, and I am almost out 
of time, but people are getting reconsideration requests but 
the program is closed now.
    Mr. KELLEY. Yes.
    Mr. GARBARINO. So I think there is a disconnect there and 
it is really confusing a lot of my constituents.
    Mr. KELLEY. The challenge is going to be from the date that 
they signed the note they cannot seek an increase beyond 24 
months.
    Mr. GARBARINO. Okay. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Ms. Chu, the gentlelady from California is recognized for 5 
minutes.
    Ms. CHU. Yes, Associate Administrator Kelley, I am feeling 
the distress that some small businesses are experiencing in 
getting shut out of COVID EIDL funding due to agency errors or 
delays outside of their control.
    A couple of examples from my district. A small business 
owner in my district applied for a COVID EIDL loan increase 
well before the May 6th deadline but because the IRS did not 
send the SBA the required tax transcripts in time, the 
application was not considered complete and will be rejected.
    Another small business owner in my district applied for a 
loan increase more than 2 weeks before the deadline but 
experienced a technical issue with the SBA's online portal. 
They immediately notified SBA and called the agency every day 
to see if the issue had been resolved but they still have not 
heard back about the status of their application and are 
concerned that they will not receive funding.
    These are just two of the examples but I am sure that there 
are thousands more small businesses in similar situations.
    How is the SBA going to make all the small businesses like 
this who had a lag in response from the IRS or who were not 
able to submit their completed application due to your own 
agency's errors? Is it possible to extend the deadline for 
these particular businesses?
    Mr. KELLEY. What I would recommend, so what I would say to 
all the Committee Members, and I would recommend in this case 
that we address each individual issue. What I have found since 
July when I took over this program is that there is a lot of 
detail with each individual inquiry.
    With respect to taxes, I agree that we as a nation should 
prioritize helping the IRS with the 4506T Modernization. There 
is a bill that was passed for the IRS to make available through 
API income verification that would not only help us administer 
these programs but it would be a tremendous tool for the 
commercial lenders and it would directly impact small business 
borrowers because they would be able to get a faster quote at a 
lower rate because of the verification of the income. One of 
the lessons coming out of the Great Recession and the 
Residential Mortgage Meltdown was stated income loans, or so-
called liar loans create challenges.
    It is absolutely the case that borrowers who could get a 
loan in 2020 with no income verification and are having issues 
with their 2019 tax filing are frustrated. It is important to 
note that the largest single request that we deal with from 
Members or directly through our field offices relates to a 
disagreement over amended tax filings. This is to say that 
there was a reported income that justified a lower increase 
request that the agency did approve and the borrower is seeking 
reconsideration of that by amending their tax filing. And 
coincidentally demonstrating that they are now eligible for an 
increase over and above what they had previously filed. It is 
important to understand that we are all dealing with a balance 
of speed and certainty here with the speed to get the emergency 
relief out and the certainty that we all want and this 
Committee has prioritized in the Economic Aid Act with respect 
to safety and soundness and mitigating fraud, waste, and abuse.
    Ms. CHU. Well, what about the situation with the portal not 
being functional? That is the SBA's error.
    Mr. KELLEY. So by definition, there were 9,000 
reconsideration requests that were pending on May 6th and there 
were 4 million outstanding loans. So there are, in fact, 
thousands literally of folks who are frustrated with the 
process at any one time. But the scale and magnitude of the 
volume that we are dealing with, which is to say we have been 
approving roughly 40,000 to 50,000 loans a day since July on 
the order of magnitude of a half a billion to a billion dollars 
in some cases means that by definition there will be larger 
numbers across the board. Our call center response time is less 
than 42 seconds to pick up the phone. The longest wait time 
recorded since September is 17 minutes. And the average 
disposition time is 7 minutes. So, there is opportunity to 
interact with a human and to dispose of these. And I am happy 
to work with your Member and the individual borrower offline to 
try to get to hopefully a positive outcome.
    Chairwoman VELAZQUEZ. The gentlelady's time has expired.
    Now we recognize the gentlelady from New York, Ms. Tenney, 
for 5 minutes.
    Ms. TENNEY. Thank you, Chairwoman Velazquez and, also, 
Ranking Member Luetkemeyer, my Vice Ranking Member next to me, 
Mr. Williams, another small business owner, and thank you, Mr. 
Kelley, for being here today.
    I know you are going to understand this completely because 
you are a Colgate graduate. Over the past few decades, too many 
of our communities have been left behind by manufacturers. Many 
of the businesses moved to China. You know that as a person who 
lived in Hamilton, New York, for a few years of your life. My 
mom's hometown. This has been really exacerbated by the reality 
that capital today is really hard to get, and we are relying on 
SBA, many of our businesses. A lot of the money tends to be 
focused on big city hubs, so Boston, New York, San Francisco. 
And yet, it is disproportionately not going to areas like 
Hamilton and rural Upstate New York that I represent that have 
capital-intensive businesses in the manufacturing sector that 
have long-term profit horizons but it takes a lot more capital 
to get them up and running but they have longer term prospects. 
And also, more job opportunities for people in these 
communities, especially everyday Americans.
    And I introduced a bill called the American Innovation and 
Manufacturing Act, and that was to address this imbalance. I 
think there is a place where small business could be really 
helpful in this. It would provide flexible financing. We have 
also great people in the audience here today who are working on 
providing private lending options to our SBA, through SBA, and 
also to our small business community.
    But my first question to you is right now we have got this 
situation where the PPP and the COVID programs are going to 
take about a decade to close out, but the SBA and the 
congressional Democrats are pushing to create new programs for 
them to direct new lending. And I know you have been tackling 
questions all morning on this. So even though that is 
happening, with the SBA's current tissues managing the fraud 
and difficult loan cases and the PPP and EIDL programs, number 
one, why should we trust the agency to continue to take on new 
types of programs that are more diverse and why do you not see 
a need to move to the private sector using partners like 
community banks and others to help our underserved in rural 
communities? I know there is a lot there but if we could 
address, we are creating all these new programs. Why are we not 
going and using these private sector type lenders and 
institutions who are really going to enhance the SBA's role and 
take a lot of that away from sort of a larger bureaucracy that 
you are describing today has been very difficult to manage?
    Mr. KELLEY. So first I would say that you are absolutely 
right that the choices made in 2020 with respect to the safety 
and soundness measures for PPP and COVID EIDL created or 
increased the likelihood of the challenges that are highlighted 
in the audit reports that reflect that. What is also true is 
you would be hard pressed prior to that to find an IG or GAO 
audit report discussing either natural disaster lending or the 
core 7(a), and 504 programs with respect to fraud, waste, and 
abuse. So it is absolutely the case that these extraordinary 
programs that met an extraordinary plague are outliers. So I 
believe you should feel very confident in the agency's ability 
to administer programs without fraud, waste, and abuse, because 
we have demonstrated that for the bulk of the agency's history 
with the exception being the choices made in 2020.
    Secondly----
    Ms. TENNEY. Okay, quickly, because I want to ask one more 
question.
    Mr. KELLEY. Sure. Secondly, with respect to your working 
capital situation, I completely agree. The Chairwoman, in one 
of the versions that this Committee voted out with respect to 
direct venture, and one of the programs that is highlighted in 
the president's budget goes directly to helping third-party 
lenders, private lenders, provide working capital solutions 
through certified development corporations for the type of 
asset-based financing that you are looking for, specifically 
for manufacturing. So I would love to work with your staff and 
the Committee more on that.
    Ms. TENNEY. Thank you. The last question I have is when the 
Paycheck Protection Program was created by the CARES Act, 
reauthorized in December of 2020, we applied affiliation rules 
prohibiting SBA from issuing and forgiving PPP loans to 
entities with more than 500 employees across their affiliates. 
And it only excluded hotels and restaurants. However, we have 
since learned with various witnesses before this Committee that 
the SBA and your office have since forgiven illicit loans from 
34 Planned Parenthood affiliates totaling over $65 million. 
Considering Planned Parenthood has more than 16,000 employees, 
well beyond the 500 employee threshold, what was the reasoning 
behind illicitly forgiving these loans?
    Chairwoman VELAZQUEZ. Time has expired.
    Ms. TENNEY. I would be happy to take that offline or in 
person if possible.
    Chairwoman VELAZQUEZ. The gentlelady from California, Ms. 
Kim, is recognized.
    Ms. TENNEY. Can I get that question answered offline?
    Ms. YOUNG KIM. Hello?
    Chairwoman VELAZQUEZ. Yes, I can hear you. I can hear you.
    Give me a second, please. Mr. Kelley, would you provide a 
written response to the gentlelady's question from New York?
    Mr. KELLEY. Sure.
    Chairwoman VELAZQUEZ. The gentlelady from California is 
recognized for 5 minutes.
    Ms. YOUNG KIM. Thank you. Thank you very much, Chairwoman 
and Ranking Member Luetkemeyer for holding this hearing. And I 
want to thank our witness.
    Mr. Kelley, I really want to thank you for being with us 
today.
    I echo many of the issues my colleagues have raised today, 
and I am concerned that the administration is moving away from 
SBA's core mission which is to help small businesses prosper 
and protect their interests in order to preserve free, 
competitive enterprise. But instead, the administration and SBA 
should be focusing and using existing resources to operate more 
efficiently and improve its responsiveness to small businesses 
and entrepeneurs.
    According to a recent report by the Office of Inspector 
General found that for some loans totaling $66.4 billion, SBA 
did not meet the 90-day statutory requirement to remit 
forgiveness payments to lenders. Additionally, the report 
states SBA did not meet the 90-day requirement for over 98 
percent of loans over $2 million.
    So Mr. Kelley, why is the SBA failing to meet the 90-day 
statutory requirement?
    Mr. KELLEY. It is not any longer. The report that you are 
citing references the forgiveness applications over $2 million 
that were outstanding as of March of 2021 when I took over the 
office. At that time there was a population of about 60,000 
loans that had not been processed in a timely manner. The 
previous administration did not begin forgiveness review of 
manual reviews until November of 2020 despite the forgiveness 
portal opening August 10th of 2020. From March of 2021----
    Ms. YOUNG KIM. Just talk to me about the plan that you are 
working on and how would it help?
    Mr. KELLEY. I am sorry; I did not----
    Ms. YOUNG KIM. Or how is SBA meeting the 90-day requirement 
right now?
    Mr. KELLEY. We are meeting the 90-day requirement. In fact, 
we are actually exceeding the 90-day requirement. Of the 
current workable inventory with respect to manual reviews of 
which there are roughly 40,000 at any one time, 90 plus percent 
of those will be turned in less than 15 days. There is a 
population of 4,000 that have exceeded 90 days due to hold 
codes related to fraud, waste, and abuse that we are 
interrogating which reflects that.
    I would also be happy to talk to any of your constituent 
lenders that participate in the PPP program that have any 
outstanding issues with any loan greater than 90 days.
    Ms. YOUNG KIM. Well, it seems that we have a clear case 
study on the effectiveness and efficiency of the successful 
public-private partnership versus direct lending. On one hand, 
the EIDL program disbursed loans on an average of 49 days 
during the early days of the pandemic, and they had almost $85 
billion of potentially fraudulent activity. On the other hand, 
the PPP as a public-private partnership took an average 7 days 
to disburse loans and had approximately $4.6 billion in 
potentially illegal behavior.
    So Mr. Kelley, based on these numbers, in your opinion, 
which model did a better job at disbursing loans in a timely 
manner while protecting against fraud?
    Mr. KELLEY. So I think both programs as measured by the 
audit report deserve a lot of improvement based on choices that 
were made in 2020. Each program is different. The objectives, 
for example, within the PPP program were to originate a 
forgivable note where the lender was held harmless, was not 
required to verify the payroll amount. And as I mentioned 
earlier, by and large lend the loan to an existing customer 
versus an uber credit not available elsewhere disaster loan 
which was a critical lifeline for the population that was 
widely reported in 2020 as not being able to access PPP due to 
being underbanked and underrepresented across the banking 
footprint.
    Second, with respect to the number that you all are 
aggregating with respect to the IG reports for COVID EIDL, the 
lion's share of the use case that makes up that number refers 
to the sole proprietors, including employee numbers, on their 
applications for the advance, which was distributed in 2020. 
And not having a requisite EIN number.
    The IG has classified that not technically as fraud per se 
but as being ineligible. And their justification is the absence 
of EIN, which is a requirement for a sole proprietor declaring 
employees?
    Chairwoman VELAZQUEZ. Time has expired.
    The gentleman from Minnesota, Mr. Stauber, is recognized 
for 5 minutes.
    Mr. STAUBER. Thank you, Madam Chair. Thank you, Ranking 
Member Luetkemeyer, for holding this meeting.
    Associate Administrator Kelley, I appreciate you being here 
today.
    In your testimony, you mentioned that 5.4 million Americans 
filed an application for a new business in 2021. You also state 
that as the SBA transitions its focus from pandemic to its core 
mission, the agency has never had more startups to support.
    Would you say that adding $201 billion in additional 
regulatory cost and over $130 million in new compliance hours 
for small businesses as the Biden Administration has 
ambivalently done or support actions for these 5.4 million new 
startups?
    Mr. KELLEY. I think the regulations that you are 
referencing are appropriate for the industries that they are 
overseeing. And we have seen time and time again that if we do 
not have the proper rules of the road, it is the small 
businesses that actually are disadvantaged because the major 
corporations are able to use their vast resources to a 
comparative advantage. So I agree with you that 5.4 million 
small businesses absolutely need fairness across the board. And 
obviously, Administrator Guzman is, you know, their voice.
    Mr. STAUBER. So would you agree that $201 billion of 
additional regulatory costs for small businesses is not wise?
    Mr. KELLEY. I agree that you are citing an aggregation of 
the PRA citations in the Notice and Comment Rulemaking for 
which the public will have an opportunity to weigh in on those 
rules. I am also in agreement that for specific industries we 
need to have fair rules of the road so that there is a 
competitive landscape for small businesses to compete.
    Mr. STAUBER. You certainly want a competitive landscape in 
adding--these are the Biden administration's own numbers--
adding $201 billion of additional regulatory costs is 
unacceptable as we look at COVID through our rearview mirror.
    From the budget proposal, it is clear that the SBA 
administrator is looking to promote her own goals and 
initiatives rather than deal with the follow-up pandemic. The 
pandemic may be over but the responsibilities of this agency 
certainly are not. EIDL loan payments are going to begin soon. 
More fraud than we already know to exist is going to bubble up. 
Innocent people are going to get hurt.
    This leads me to my next question. How is this agency 
managing its resources? Are you directing money away from 
incomplete tasks for the administrator's wish list initiatives? 
Because according to your budget justification, the SBA seems 
to think it is more prudent to use taxpayer dollars to pay off 
environmentalists but help small businesses that are facing 
skyrocketing inflation, a labor shortage, and a continued 
supply chain crisis.
    Mr. KELLEY. I am sorry, I did not catch the end of your 
question.
    Mr. STAUBER. How is the agency managing its resources? 
Administrator's wish list, it seems like the administrator is 
putting a wish list forward. I want to know your budget 
justification. The SBA seems to think it is more prudent to use 
taxpayer dollars to pay off environmentalists and help small 
businesses that are facing skyrocketing inflation, labor 
shortages and a continuing supply chain crisis.
    Mr. KELLEY. So, I am not aware of the budget paying off 
environmentalists. What I am aware of is the increase in the 
frequency and the aperture of natural disasters nationwide and 
in the territories. And what is absolutely paramount, as you 
heard me answer to that Chairwoman earlier and promise, we need 
to make sure that there is never an instance where someone 
cannot receive natural disaster lending either on the consumer 
side to make up for a delta between their property insurance 
and what the true physical damage is to their home, and for the 
small business's working capital. We are focused on providing 
lending and capital for growth. Growth is as important now as 
ever and fixed rate products are obviously a unique opportunity 
leveraging the 7(a) and the 504 program.
    The last thing I will say is that I believe that this 
country at this point is truly served by this administrator 
give her experience, not just in the Biden administration but 
being on the ground when the pandemic was unfolding in a 
similar position for the State of California, which is the 
sixth largest economy.
    So I believe that she understands and has a full grasp of 
the issues and concerns that you have highlighted.
    Mr. STAUBER. I expect as the associate administrator you 
would make those statements about our administrator.
    Madam Chair, how much time do I have left?
    Chairwoman VELAZQUEZ. Your time has expired, sir.
    Mr. STAUBER. I apologize and I yield back, Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman yields back and now we 
recognize the gentlelady from Texas, Ms. Van Duyne, for 5 
minutes.
    Ms. VAN DUYNE. Thank you, Madam Chair, and to the Ranking 
Member for holding this hearing today. And thank you, 
Administrator Kelley, for appearing before us.
    This hearing comes at a precarious time for small 
businesses. Over the past few years they have battled and 
emerged from the pandemic that permanently forced many small 
businesses to close their doors. Yet, at this moment, small 
employers are the least optimistic about their future business 
conditions than they have been in almost 50 years. And how can 
you blame them? 8.3 percent annual inflation is ripping through 
the economy without signs of stopping. Every business you talk 
to cannot find people to hire, and supply chains are still in 
turmoil. There is no doubt that this administration's fiscal 
policies have played a hand in overstimulating the economy.
    The San Francisco Fed found their fiscal support and 
countered for over a third of the recent rise in inflation. 
Fortunately, this Administration's response has been much of 
the same rhetoric. The president tweeted that the key to 
bringing inflation was ``making sure that the wealthiest 
corporations pay their fair share.'' And yet, his new press 
secretary could not even defend that statement.
    In an environment that leaves business owners looking for 
ways to cut costs, this president still has on his mind 
increasing taxes. That will be devastating for small 
businesses.
    On this Committee, we have established that tax increases 
would directly and indirectly impact small employers. But lucky 
for us, the key to a thriving small business economy and a 
lower inflation environment lies with less government 
interference and spending.
    And let's be clear. We are nowhere near finished with the 
oversight of COVID relief. The Washington Post just put out a 
story about close to $163 billion in unemployment fraud. And 
combine that with the staggering amount of fraud in small 
business programs, we are nearly a quarter of a trillion in 
waste. Imagine what we could do with that money. Maybe we could 
actually deal with the rapidly approaching expiration dates of 
Medicare and Social Security Trust Funds.
    The message to the American people should be clear. The 
federal government will not spend any new money while we work 
to get back the billions of dollars in improper payments.
    Mr. Kelley, I have just a couple of questions. Is the SBA 
and the Office of Capital Access expecting or planning for a 
recession in the U.S. economy?
    Mr. KELLEY. We are not expecting anything related to that. 
What we are doing every single day is providing credit not 
available elsewhere. So our----
    Ms. VAN DUYNE. Okay. So you are taking no steps at all to 
plan for a recession?
    Mr. KELLEY. Our program with respect to its CORE products 
is actually a product that will work very well for small 
businesses and lenders regardless of the economic----
    Ms. VAN DUYNE. Oh, that is wonderful, so but are you saying 
that you are not taking any steps to prepare for a recession?
    Mr. KELLEY. No, I am saying that we have loan products that 
we administer----
    Ms. VAN DUYNE. So you are taking steps to prepare for a 
recession?
    Mr. KELLEY. I think I have answered the question which is I 
am saying----
    Ms. VAN DUYNE. It is a yes or a not. Are you not or you 
are?
    Mr. KELLEY. We are administering a program that provides 
loan products----
    Ms. VAN DUYNE. So is it a yes or a no?
    Mr. KELLEY. That we are providing loan products, it is a 
yes.
    Ms. VAN DUYNE. That you are preparing or not preparing for 
a recession?
    Mr. KELLEY. We are not currently preparing for a recession. 
No.
    Ms. VAN DUYNE. Okay. So would you agree that the overall 
economic situation does impact lending cycles? And whether 
small business owners may seek out SBA loans versus a private 
lender?
    Mr. KELLEY. I am sorry; could you repeat the question?
    Ms. VAN DUYNE. Would you agree that the overall economic 
situation impacts lending cycles?
    Mr. KELLEY. Yes.
    Ms. VAN DUYNE. And whether or not small business owners can 
seek out SBA loans versus a private lender?
    Mr. KELLEY. Yes. But what happens in a recessionary 
environment is that the SBA loan products are actually in 
greater demand. And so----
    Ms. VAN DUYNE. Okay, so good to know. So as I am sure you 
are aware, many financial institutions are starting to 
anticipate and price in a higher risk of a recession. So I am 
interested in why private lenders are adjusting to this economy 
at a higher risk of a recession but the SBA is not thinking 
about it.
    Mr. KELLEY. It is not that we are not thinking about it. 
Our core products depend on those lending intermediaries that 
you just referenced. And the core product actually benefits 
them in the counter cyclical environment. So what I am saying 
to you is that the particular program that I administer has 
loan products that are most useful in countercyclical 
environments. So whether I am in a----
    Ms. VAN DUYNE. Okay. I have got to yield back my time 
because I have only got 17 more seconds.
    As you talk with small business owners I am curious, what 
is a bigger concern for them, climate change or inflation?
    Mr. KELLEY. I think that anything that impacts their 
business is a concern. And both of those----
    Ms. VAN DUYNE. But you think they are more concerned with 
climate change right now or inflation?
    Mr. KELLEY. I think with respect to the references to 
climate change within the specific budget it is in reference to 
natural disasters that have eviscerated their small business. 
So I believe----
    Ms. VAN DUYNE. Okay. I yield back my time. Thank you very 
much.
    Chairwoman VELAZQUEZ. Time has expired.
    Thank you, Mr. Kelley, for appearing before us today. The 
work that you and your staff do is fundamental to the success 
of our main street communities.
    We are committed to working together to enhance OCA's 
program, remove barriers to accessing capital, and support 
entrepreneurs as they continue to lead our recovery.
    Without objection, Members have 5 legislative days to 
submit statements and supporting materials for the record. If 
there is no further business to come before the Committee, 
without objection, we are adjourned. Thank you.

    [Whereupon, at 11:53 a.m., the committee was adjourned.]
    
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