[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]




                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                              HEARING HELD
                             AUGUST 4, 2009



            Small Business Committee Document Number 111-042
Available via the GPO Website: http://www.access.gpo.gov/congress/house

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                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                        PARKER GRIFFITH, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director




                         STANDING SUBCOMMITTEE


                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman

DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia



                            C O N T E N T S


                           OPENING STATEMENTS


Schrader, Hon. Kurt..............................................     1


Dewolf, Mr. Harry, Director, Portland SBA Office, Portland, OR...     4
Brunberg, Mr. Jim, Owner, Mississippi Studios, LLC, Portland, OR.     6
Southwell, Ms. Sheryl, President, Specialty Polymers, Inc., 
  Woodburn, OR...................................................     8
Parks, Ms. Wilda, Director, North Clackamas Chamber of Commerce, 
  Milwaukee, OR..................................................     9
Safstrom, Mr. John, Loan Program Manager, Mid-Willamette Council 
  Of Governments, Salem, OR......................................    17
Hein, Mr. Rick, President And CEO, OSU Federal Credit Union, 
  Corvallis, OR, On behalf of the Credit Union Association of 
  Oregon.........................................................    19
Wilmes, Ms. Kim, CEO, Metal Innovations, Inc., Aurora, OR........    23
Harville, Mr. Nick, Business Retention & Expansion Manager, 
  SEDCOR, Salem, OR..............................................    26
Brandt, Mr. Terry, Executive Director, Albina Opportunity 
  Corporation, Portland, OR......................................    28
Compton, Mr. Randy, CEO, Pioneer Trust Bank, Salem, OR...........    30
Nass, Mr. Stephen P., Assistant Vice President, Commercial Loan 
  Officer, Pioneer Trust Bank, Salem, OR.........................    32
Rasmussen, Mr. Jim, President, Modern Building Systems, 
  Aumsville, OR..................................................    33




                                     Prepared Statements:
Schrader, Hon. Kurt..............................................    36
Brunberg, Mr. Jim, Owner, Mississippi Studios, LLC, Portland, OR.    38
Southwell, Ms. Sheryl, President, Specialty Polymers, Inc., 
  Woodburn, OR...................................................    39
Parks, Ms. Wilda, Director, North Clackamas Chamber of Commerce, 
  Milwaukee, OR..................................................    40
Safstrom, Mr. John, Loan Program Manager, Mid-Willamette Council 
  Of Governments, Salem, OR......................................    44
Hein, Mr. Rick, President And CEO, OSU Federal Credit Union, 
  Corvallis, OR, On behalf of the Credit Union Association of 
  Oregon.........................................................    52
Wilmes, Ms. Kim, CEO, Metal Innovations, Inc., Aurora, OR........    55
Harville, Mr. Nick, Business Retention & Expansion Manager, 
  SEDCOR, Salem, OR..............................................    61
Brandt, Mr. Terry, Executive Director, Albina Opportunity 
  Corporation, Portland, OR......................................    65
Compton, Mr. Randy, CEO, Pioneer Trust Bank, Salem, OR...........    69
Nass, Mr. Stephen P., Assistant Vice President, Commercial Loan 
  Officer, Pioneer Trust Bank, Salem, OR.........................    69
Rasmussen, Mr. Jim, President, Modern Building Systems, 
  Aumsville, OR..................................................    72

                                     Statements for the Record:
Mulligan's A Sports Bar, Lincoln City, OR........................    75
Hallmark Properties Inc., Woodburn, OR...........................    77
Motel 6, Lincoln City and Seaside, OR............................    79
Oregon Microenterprise Network, Portland, OR.....................    80
Corporation for Enterprise Development, Washington, DC...........    83
RTR Services, Inc., Salem, OR....................................    89



                         HELD IN SALEM, OREGON

                        Tuesday, August 4, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 8:00 a.m., in 
the Senate Hearing Room, Courthouse Square, 555 Court Street, 
N.E., Salem, Oregon, Hon. Kurt Schrader [chairman of the 
Subcommittee] presiding.
    Present: Representative Schrader. Mr. Schrader. Well, we'll 
try and get started here almost on time. We're ahead of 
Washington, D.C., time already, because all the members that 
are attending are here. That would be me. Usually it takes a 
half hour to get this crew all together. Appreciate everyone 
coming and being in attendance. Great turnout. That's very, 
very good.
    This hearing is about jump starting our credit market 
again, and identifying problems that small businessmen and 
women are facing in my state, Oregon. But I think we're 
probably very reflective of the issues that we're seeing around 
the country.
    It's not a general type of public hearing, so we have 
invited testimony only. But if you have other issues you want 
our congressional office to talk about or respond to you on, 
please feel free to submit some information. Jon Pugsley is the 
lead staff person on this particular hearing. Be glad to take 
that information to try and get back to you, because there is a 
lot of issues going on in the country right now.
    But as chair of the Subcommittee on Finance and Tax for the 
Small Business Committee in our United States Congress on the 
House side, I take real pleasure and appreciate the fact of 
everyone showing up today, and particularly our witnesses here. 
That's going to be really exciting. So I'm going to call the 
subcommittee meeting to order, and I can make a maybe not so 
brief statement, and then we'll get to our witnesses here and 
line out the rules of engagement, if you will.
    Our nation's economy is built on the foundation of these 
small businessmen and women. Small firms are among the nation's 
largest suppliers and our most reliable job creators. Most 
Americans, myself included, get their first job through a small 
business. Not only do they serve as the basis for local 
commerce, but entrepreneurs also, as we know, contribute to 
local nonprofits, charity groups, churches, and other really 
worthy organizations.
    Small businesses are nothing short of the glue that holds 
our communities together on a day-to-day basis. Here in Oregon 
is no different. Almost 98 percent of our state's employers can 
be classified as small businesses. Together they comprise close 
to 60 percent of the private sector jobs in our state.
    Today, regardless of where a small business is located, 
here in Salem, Oregon, or across the country in Salem, 
Massachusetts, they all face a common challenge, and that's 
trying to access capital. But simply, when a family-owned food 
cannery in Keizer wants to expand its operations and hire more 
workers, it requires a loan.
    When a high-tech entrepreneur wants to develop new markets, 
new products, he needs initial investments to get started. And 
when a construction company wants to purchase additional 
equipment, it takes capital. Investments like these will be 
what drive our economic recovery, not the government.
    During today's hearings we will examine the challenges 
Oregon's businesses are experiencing and discuss how to help 
them. Like entrepreneurs around the country, Oregon businesses 
often find solutions through the Small Business Administration. 
Last fiscal year, through it's 7(a) and 504 programs the Small 
Business Administration helped almost 1,200 Oregon businesses 
get loans totaling $270 million.
    That's money to help firms keep their lights on, the doors 
open, make the payroll, and hopefully hire some workers. The 
SBA's lending programs are especially important during economic 
downturns when credit is scarce. When the private capital 
markets don't meet small business's needs, these initiatives 
are meant to fill in the gaps and get credit flowing again.
    Unfortunately, that doesn't seem to be happening that much 
this recession. Across the country 7(a) loans are down about 30 
percent. Here in Oregon the drop-off has been particularly 
acute, off by about 37 percent. Today's hearing hopefully will 
explore some of the reasons for that.
    The Recovery Act which Congress passed and the president 
signed into law in February has taken some steps to address 
these problems. By making loans less expensive for borrowers, 
by increasing the percentage of the loan that the SBA will 
guarantee, this new law is hoping to help facilitate private 
lending to small businesses. Since the passage of that act, 
Oregon businesses have received 232 loans, totaling over $53 
million, but there is a long way to go.
    The act also established a new ARC loan program, which has 
recently been put into play, in June I believe. It enables 
small businesses to take out interest-free loans of up to 
$35,000, bridge loans, in effect. And under the program small 
businesses will have five years to repay the loans, and the SBA 
guarantees 100 percent of the loan to entice the lender to make 
    Congress has done a lot in recent months to help businesses 
that are shedding employees and teetering on the edge of 
bankruptcy. My hope is that this program will actually help the 
small man and the small woman in their businesses. So far 
Oregon businesses have received $500,000 worth or ARC loans, 
and this program, as I said, was launched just in June. During 
this hearing I'd like to get some feedback on how well that 
program is working and what we can do to improve it.
    When Congress reconvenes in September, I expect the Small 
Business Committee to begin consideration of legislation to 
help unfreeze our credit markets as a result of a lot of the 
testimony we're going to have here today. Last month our 
subcommittee kicked off that process. We had hearings in 
Washington, D.C. But you can only learn so much in Washington, 
D.C., and I thought it was important to get home and talk to 
all of you.
    That's why I'm excited to talk to the local businesses here 
in Oregon about our capital needs. We want to know what's 
working, and more importantly what's not, what changes we can 
make to make the programs more effective. And so I'm looking 
forward to hearing from each and every one of you.
    With that, we're going to go to the witnesses. We have 
basically three panels here. The first panel is going to talk a 
little bit about the problems, or a lot a bit about the 
problems that we're facing here. We're going to hear from the 
lenders a little bit in the second panel, because they also 
face problems and have opportunities.
    And then the last panel in particular we're going to be 
trying to get at solutions. But certainly anyone at any time in 
this hearing that's testifying feel free to step up and give us 
some of the idea of the solutions that we could expect. And 
make sure you turn off your pagers. Sorry about that. The 
ground rules.
    We'll move to testimony from the witnesses. You have only 
five minutes, I'm sorry, to make your statement. We'll try and 
give a little leniency. Since we're here in Oregon, we can do 
that. But I want to give everyone a chance to make their case, 
and I'd like to ask a few questions to kind of tease out some 
of the threads of what's going on.
    We don't have any little timers--or do we have any timers 
here? So there is no clock here. There is a clock behind us. 
Tell you what I'll do. I might just kind of give you a heads up 
if you are getting to one minute. How is that? Is that all 
    I'll just kind of hold up one finger, because I don't want 
to disrupt your testimony. This finger (indicated). That means 
you have got one minute left. That way you can kind of get down 
to it here.
    And who is going to be my timer, actually?Michael. Thank 
you very much. I'd like to recognize Michael Day has come out 
from Washington, D.C. He's actually the lead committee 
administrator for the Small Business Committee. So it's really 
an honor to have him out here and observing what's going on. He 
helps us look moderately intelligent when we draft our 
legislation, so it's very, very nice that he's taken the time 
out of his day to come here.
    And then Ethan Pittleman, who is standing next to him, 
working with Jon Pugsley--where is Jon Pugsley? Jon Pugsley is 
in the back over there--are our two small business 
coordinators. Ethan does it in Washington, D.C., and Jon does 
it here. So those are your two local contacts when I'm not 
around. So I really appreciate all the work they have done 
    So with that, let's go to our first witness. It's going to 
be Mr. Harry DeWolf. He's here testifying on behalf of the 
Small Business Association. He's the district director of the 
Portland district office, which is responsible for the delivery 
of SBA's programs and services through most of Oregon and 
southern Washington.
    Prior to joining the SBA in 2005, he served as president 
and chief of operations of AEC Technical Publications, which 
itself was a former SBA business. He also served for over 
twenty years in the U.S. Navy--thank you for your service, 
sir--as a supply officer, and he's a graduate of Oregon State 
University and is a regular speaker on the entrepreneurial 
leadership at Oregon's colleges and universities.
    Mr. Schrader. I thank you for coming to Salem, and look 
forward to your testimony. Please proceed.

                   STATEMENT OF HARRY DEWOLF

    Mr. DeWolf. Thank you, Congressman. Congressman Schrader, 
thank you very much for inviting me to testify today. As the 
district director of the United States Small Business 
Administration's Portland district, I have the responsibility 
for the central and western 30 counties of Oregon and four 
southwest counties of Washington state. My staff of ten is 
working very hard with our banking partners, our 21 small 
business development centers, and six chapters of SCORE 
volunteers throughout our community, along with our community 
leaders, to assist the nearly 300,000 small businesses in the 
Oregon state.
    With the assistance of our partners, I am very proud of the 
results we have been able to consistently achieve, even in 
these challenging economic times. To date, SBA has guaranteed 
656 SBA loans, valued at $149 million in the Portland district. 
That's as of the end of July. Over fifty percent of these loans 
went to veterans, women, and minority small business owners, 
and 22 percent of the 656 went to our rural communities.
    Thanks to the funding and program changes provided in the 
America Recovery and Reinvestment Act, or Recovery Act, the SBA 
has been working to unlock the small business lending market 
and get much needed capital flowing again to America's small 
businesses. Nationally and locally the results are growing in 
positive trends. Nationally, loan volume has increased more 
than 45 percent as of SBA has supported $7.4 billion in small 
business lending, with the approval of $5.4 billion in loans 
since February 17th.
    Weekly loan volume is up 45 percent compared to the weeks 
preceding the Recovery Act. In Portland the loan volume has 
increased 40 percent during that same time period. And last 
month our district achieved the highest number of loans 
processed in a month since August of last year, with 89 loans 
valued at $23 million, all to Oregon small businesses.
    Nationally, lenders are returning to SBA programs. From 
February 17 to July 17, more than 750 lenders that had not made 
a loan since October of 2008 made 7(a) loans. Of those, more 
than half had not made a loan since 2007. Broad support to 
small businesses, a significant share of loans supported by the 
Recovery Act funding has gone nationally 26 percent to rural, 
minority owned 20 percent, women owned 19 percent, and veteran 
owned 9 percent.
    Our secondary markets have seen an uptake in the 7(a) 
loans. After months of reduced activity and lower premiums, the 
SBA 7(a) secondary market is picking up and premiums are 
beginning to recover. For example, nearly $360 million in 7(a) 
loans settled or were sold in the secondary market in June, 
lifting the secondary market closer to historic levels and 
providing lenders with additional liquidity in increased 
    The ARC loan, or America Recovery Capital loans, are 
reaching small businesses. As of July 22, SBA has approved more 
than 700 ARC loans, totaling $22.8 million, and weekly loan 
approvals are consistently increasing nationally. In Portland, 
as of yesterday there have been 17 ARC loans made so far, 
totaling $575,000.
    Some other SBA recovery programs, to date SBA have 
implemented programs from the nearly $730 million given to us 
from the SBA Recovery Act, including eliminating and reducing 
fees for borrowers on 7(a) loans and borrowers and lenders of 
the 504 loans, by raising the 90 percent guarantee on 7(a) 
loans from the original 75 and 85 percent, more than doubling 
the surety bond guarantee from $2 million to $5 million, a much 
needed increase, providing small business owners with another 
tool to help them compete for federal construction and service 
    Additional funding available from micro lending, the SBA 
has used fiscal year '09 budget funding for the micro loan 
program to increase Portland micro lending funds to $1.1 
million, from original $115,000. We are also working very hard 
to expand our network on nonprofit micro lending 
intermediaries. We're providing refinancing opportunities for 
eligible expansion projects in the 504 program, expanding 
access to capital for small businesses by increasing funding 
levels of the SBIC program, and the SBA has implemented two new 
programs that complement the Recovery Act measures, expanding 
the 7(a) loan eligibility to more than 70,000 small businesses 
with a temporary alternative size standard; and finally, the 
offering of inventory financing for eligible automobile, 
recreational vehicle, boat, and other dealerships under the new 
dealer floor financing pilot program.
    These are challenging times for everyone. These are also 
times of opportunity. Many business owners I speak to are 
taking this time to refine their business model, rewrite their 
business plan, streamline their business practices, get rid of 
old inventory, and sometimes change their businesses 
    Many of today's most successful companies were created and 
have thrived during some of the most economic downturns. The 
biotech and computer industry were created when the stock 
market was down nearly 50 percent and inflation was headed into 
double digits. In the early '80s mortgage rates were near 21 
percent, yet E-trade, Sun, AutoDesk, Adobe, AE, and Semantic 
were created. These companies did not sit on the sidelines. 
Their founders saw needs and opportunities and filled them.
    Mr. Schrader. You might want to wrap up, Mr. DeWolf.
    Mr. DeWolf. Companies such as McMenamins, Columbia 
Sportswear, Mo's Chowder, and DeMarini Sports are just a few 
Oregon companies the U.S. Small Business Administration has 
assisted, either through its loan guarantee programs or through 
its strong network of partnerships to provide counseling and 
    Thank you again, Congressman Schrader, for this 
opportunity. The Small Business Administration appreciates your 
leadership on the Small Business Committee, and we look forward 
to working with you and your staff to support the nation's 
small businesses.
    Mr. Schrader. Thank you very much, and thank you for all 
the work you are doing. You are going to be busy, I've got a 
feeling, the next few years.
    Mr. DeWolf. It's been busy this year.
    [The statement of Mr. DeWolf is included in the appendix.]
    Mr. Schrader. Okay.
    Our next witness is Ms. Sheryl Southwell. Ms. Southwell is 
here to testify on behalf of Specialty Polymers, Incorporated, 
which manufactures more than 250 different water-based polymers 
for house paints, wooden deck coatings, roof coatings, cement 
coatings, and wood glues.
    Specialty Polymers is a family-owned small business based 
in Woodburn, Oregon, with another facility in Chester, South 
Carolina, so it's a national business. It was recognized by the 
Austin Family Business Association, a unit of Oregon State 
University's College of Business, as the family business of the 
year in 2004. Congratulations.
    Sheryl is the second generation of Southwells to serve as 
president of Specialty Polymers, as her father, Raymond ran it 
for 35 years. Sheryl also recently was the executive board 
chair of the Strategic Economic Development Corporation, also 
known as SEDCOR, and currently serves on the board of the 
Woodburn Chamber of Commerce. We welcome you and thank you for 


    Ms. Southwell. Thank you, Congressman. We are a 
manufacturer based in Woodburn, Oregon, and for more than 40 
years we've been supplying water-based polymers to companies, 
like you mention, make products such as house paint, deck 
coatings, concrete coatings, as well as wood doors and windows. 
As the recession hit, our business was hit. Over the past two 
years we have had to cut, cut, and cut some more. At the 
beginning of 2007, we had 144 employees. As of today, we have 
83.That is 61 people, 61 family wage manufacturing jobs that 
are gone.
    And quite frankly, at this point in time I don't know when 
they are going to be back, if ever. We don't spend any money, 
any money unless it's absolutely necessary. I don't care if it 
is for raw materials, printing of literature, buying 
promotional products, taking a customer to dinner, or the 
cleaning of our office building, if it is not critical to our 
business, we don't do it.
    There is absolutely nothing, zero, being spent on 
equipment. No pumps, no piping, no stainless steel mixing tubs. 
In addition, we've had to suspend donations to local agencies 
and causes that we've been supporting for years.And we know 
that the lost jobs have an impact on our community. We know 
that not buying goods and services from the local suppliers 
impacts our community. We know not being able to donate to 
local agencies impacts our community. But this is the reality 
of the economic climate today.
    Business requires access to money. The news tells us daily, 
if not more often than that, of the challenges of the credit 
markets. It's hard to get and it's more expensive. We've worked 
closely with our bank, but it's cost us more money than it's 
cost us in the past. Several years ago we looked at getting an 
SBA loan to finance a particular project. This was done in 
conjunction with our bank. And I have to say it was a bit 
    The SBA provided no solutions to manufacturing business 
that was our size. There were no options. Based on our size, 
the capital intensive nature of our business and the 
requirements, it made it impossible for us to secure such a 
loan. See, Specialty Polymers is classified as a small 
business, but we just don't seem to fit the profile of what the 
SBA was designed to serve.
    As you mentioned in your announcement for this hearing, 
small business provides jobs to 57 out of every 100 working 
Oregonians. These small businesses are very personally 
committed to their communities. They buy from local suppliers. 
They pay taxes. They donate to the local charities and the 
local agencies. When small businesses suffer, it's our 
communities that suffer.
    I know many small business owners, and I have to include 
myself in that group, feel that the bail-outs and the stimulus 
plan have passed them by. There was nothing in these plans to 
support small businesses or small businesses of our size. If 
we're going to work our way out of this recession, small 
business must be healthy, and there needs to be a clear 
understanding that small businesses come in different shapes 
and sizes. The SBA needs to be able to provide solutions for 
some of the bigger small businesses. Thank you.
    [The statement of Ms. Southwell is included in the 
    Mr. Schrader. Very good. Thank you. Very good testimony. 
You struck a good chord.
    Well, let's go back to Jim Brunberg. Are you recovered 
enough to start, sir?
    Mr. Brunberg. I apologize for my being late.
    Mr. Schrader. No, no, no. We understand. It's tough to get 
around sometimes. The only good news I can say is it's better 
than Washington, D.C., traffic. I don't even own a car out 
    Mr. Brunberg. I can't blame the traffic, and I'm not 
familiar with formalities with which I should address the panel 
or whom I am addressing.
    Mr. Schrader. You are actually addressing me.
    Mr. Brunberg. Oh, hello.
    Mr. Schrader. What I'll do is introduce you, and then you 
make your statement, and then after everyone on the first 
panel, we have three panels, makes their case, then I'd like to 
ask a few basic questions, actually, and we'll have the next 
panel come up. And then you are off the hook, then, at that 
point in time.
    Mr. Brunberg. Okay. Thank you very much.
    Mr. Schrader. So I'll just introduce Mr. Jim Brunberg. He's 
here to testify on behalf of Mississippi Studios, a popular 
night club and lounge based up in Portland. Since its founding 
in 2003, Mississippi Studios has brought such famous performers 
to its stage as the Indigo Girls, Willie Nelson, Huey Lewis--
pretty good.
    Jim is also a music performer who has traveled extensively, 
and somehow he found time to complete a law degree from Lewis & 
Clark. That's impressive. Mississippi Studios is also one of 
the first businesses in our state to receive an ARC loan from 
the SBA. That loan was created by the American Recovery 
Reinvestment Act, provides up to $35,000, zero interest, 100 
percent SBA guarantee, for very short-term relief for small 
    I'm very interested in your testimony. Please proceed.

                   STATEMENT OF JIM BRUNBERG

    Mr. Brunberg. Yeah, I'll try to be brief. I wrote this down 
to just sort of explain how the ARC loan helped us. I own and 
operate Mississippi Studios Concert Venue, a small business in 
North Portland, in the recently economically redeveloped 
historic Mississippi commercial district. I employ 18 people in 
the historically risky, volatile, yet culturally important arts 
industry. We underwent a seven-month renovation in 2008 in 
order to expand to an economically sustainable size.
    Even though the big artists that you listed have played our 
venue, we were just an 85-seat, tiny, tiny place, sort of a 
living room concert series. But we would appeal, using my music 
business connections and the recording services that we 
offered, to pull in some of the larger artists. But mainly it 
was about bringing music into our community, which was pretty 
much devoid of that until 2003.
    So we underwent this renovation and expansion and 
established a food and bar profit center that would hopefully 
support our main product, which was live music. But the timing 
of this expansion turned out to be unfortunate. The fuel crisis 
in the summer of 2008 caused building expenses, especially 
steel and cement, to almost double what they had been a few 
years earlier.
    Other unforeseen building expenses included the necessity 
of having to move our water, sewer and sprinkler lines, all of 
which involved separate digs, street blockages, delays and 
extra fees paid to the city. Once we expanded and reopened in 
March 2009, the economy turned sour or was in the middle of a 
downturn, and we faced a dearth of available touring vans, 
patrons and sponsorship money, the three main components of 
success in the industry.
    Although the spring months went fairly well, summer, the 
dark months for indoor music, literally came early and cast a 
longer, darker shadow on our business than we had anticipated. 
I tried in vain to capitalize our efforts to get through the 
summer, seeking traditional funds. While the hope of support 
from the PDC, the Portland Development Commission, presented a 
distant light at the end of the tunnel, immediate funds did not 
seem attainable to help us through the short term.
    Albina Bank had procured us an SBA loan to fund the core of 
our construction budget, so naturally I searched there for some 
summer capital, and was at first turned down. But when the ARC 
program came about, I was informed that there might be some 
relief for small businesses suffering from the economic crunch. 
The ARC loan we received came just in time for us.
    There was very little bureaucratic friction, and the 
paperwork seemed sensible and easy to understand. The loan 
funded quickly, and literally kept our doors open for the 
summer, kept my workers employed, and kept our business open as 
a magnet to the economically redeveloping neighborhood. That's 
    [The statement of Mr. Brunberg is included in the 
    Mr. Schrader. Very good. Very good.
    Thank you. You made it under the five minutes, too. You get 
an extra gold star for that. Well, thank you. Thank you very, 
very much. Good testimony.
    Well, our next witness is Ms. Wilda Parks. She's here 
testifying on behalf of the North Clackamas County Chamber of 
Commerce, of which she is president and CEO for almost eleven 
years. That's very good. You are very nice to stay with us that 
long. She's previously served in California, in the Chamber of 
Management, where she completed the six-year program of the 
United States Chamber Institute of Organization Management in 
    She has also been recognized for her entrepreneurial 
leadership by numerous organizations. Wilda was awarded the 
Russell E. Petit Excellence in Leadership Award from the 
Western States Association Chamber of Commerce Executives, and 
was named one of the top ten business and professional women of 
the year in California Central Valley in 1966.
    She also serves on numerous boards in Clackamas County, 
ranging from economic development, crime reduction, to 
conservation efforts. In her spare time--I don't see how you 
have any of that, but in your tiny bit of spare time she also 
founded the New Century Players, a Milwaukee area community 
theater group. Look forward to hearing all about it. Thank you.

                    STATEMENT OF WILDA PARKS

    Ms. Parks. Thank you. Thanks for the opportunity to speak 
today on behalf of small business in the metro area, and in 
fact in the state of Oregon. The North Clackamas County Chamber 
of Commerce represents over 600 member accounts, with over 
26,500 employees in the North Clackamas area. Our main goal as 
the chamber of commerce is to ensure a strong local economy. 
Almost 70 percent of our membership, similar to many business 
associations in Oregon, is small business, with less than 25 
employees. Only 7 percent of our membership have 500 or more 
    There are many factors that, working in synergy, assist in 
the development of a strong local economy. As the backbone of 
the economy, small business plays an integral role in that 
development. But as small business struggles to meet the 
demands of today's world of competition, technology, shortages 
of qualified labor pools, and financing, the dangers to all 
aspects of our communities grows greater.
    It's difficult for business to flourish while dealing with 
all these factors, and almost impossible if any one of them 
overrides the others. Without access to capital to meet 
payroll, purchase raw materials, or for a new warehouse where 
more jobs could be created, newer expanded office, or something 
as seemingly simple as a newer enhanced telephone system, small 
business withers; and, in turn, our local economy struggles 
more. The system falls apart.
    This is a time when stepping up both the borrowing process 
and the opportunities are needed. With the rewriting of the 
Small Business Administration authorization bill, there is 
opportunity to redefine lending procedures while also seeking 
innovative ways for business to access funds they need.
    A business person should not have to max out their personal 
credit card to be able to run their business successfully, nor 
use their life savings to expand a successful product line. We 
know that there are many programs available right now, both on 
the federal and the state level, but are they enough, and is 
this an opportunity now to see what else Congress can do to 
help with that.
    According to "USA Today," four in ten small business owners 
are still not able to get the financing they need to run their 
business. That's a marked increase over nine months ago. Banks 
have not yet loosened the strings on loans, even when backed by 
SBA or state programs. In our chamber alone, I can tell you of 
a transit-oriented development product providing housing for a 
new breed of commuter who wants to live near where they can 
take transit to job sites that almost wasn't constructed 
because of a lack of financing.
    After months of exhaustive efforts for a program that was 
fully approved and partially financed by state funds for 
transit development, this company was able to find out-of-state 
bank financing to secure this project. This one project will 
mean development and construction jobs, housing, a new way of 
life for dozens of residents and future residents, while it 
also helps meet our state and federal guidelines for reduction 
of emissions.
    Another business, a health club, finally found financing 
for an expansion of their facility, adding new opportunities 
for healthier life style for residents of unincorporated 
Clackamas County. Then there is the cheesecake baker who uses 
her home kitchen to turn out hundreds of the most incredible 
cakes, and who currently is unable to get financing to open her 
store-front shop.
    From manufacturers to warehousers who want to extend, to 
add machinery, add jobs, add technology, to the silkscreener 
and the life style coach who want something other than a home-
based business, there is a need for additional financing 
    Too many of our businesses are supporting their livelihood 
by maximizing their credit cards, paying large payments with 
exorbitant interest rates, and facing declining lines of 
credit. Not enough banks are yet willing to make loans to small 
business or even maintain their credit and loan agreements.
    Dr. Thomas G. Jones, professor at Marylhurst University and 
Clackamas Community College, instructor for the Clackamas Small 
Business Development Center, and noted futurist, says, "Small 
business is a vital cog in the economic engine of the United 
States economy, and a vibrant source of innovation."
    "But it's more than that. For millions of Americans, their 
small business feeds the soul, energizes the intellect and pays 
the rent. And even beyond those satisfying elements, small 
business provides a canvas for self-expression, a harbor for 
humanity in an increasing automated and impersonal world."
    "However," Jones goes on to say, based on his research and 
abilities to understand the dynamics, "this will be the first 
time in economic history that small business is not leading us 
out of a recession." Due to the lack of access to financing and 
a lack of relief for toxic assets, the TART programs for small 
business, each small business deals with 16 other small 
businesses. It's a domino effect.
    I submit to you, Congressman Schrader, we cannot permit 
this failure to happen. We cannot permit this spiral of loss. 
Congress has an opportunity now to write the future 
differently, and I urge you to take a lead in crafting a small 
business financing plan that provides opportunity for all and 
access to those who need it. Let's let small business lead us.
    [The statement of Ms. Parks is included in the appendix.]
    Mr. Schrader. Very good. Very, very good. I appreciate the 
testimony. And a lot of problems that we're facing right now--I 
guess I'd like to go to Ms. Southwell first, if it's all right.
    You talked about the problems with your particular business 
and the size of your business and SBA not matching up exactly. 
What were some of the problems you faced and what would be some 
of the solutions, based on your experience?
    Ms. Southwell. You are talking about the problem we faced 
back when we were looking at getting the loan?
    Mr. Schrader. Yes.
    Ms. Southwell. It was the size of the loan for the project, 
that we were looking at bringing out a new product line, and we 
needed some equipment to go with it, and the size of the loan 
needed to support that new equipment. It didn't fit within the 
profile of what the bank could work with the SBA. And I don't 
know the details of that part of it.
    Mr. Schrader. Okay. Let me get back to you on that, because 
that's something that has been a thread in some of our other 
hearings in Washington, D.C., because there are some loan 
limits that you come up against. And the type of business, you 
are talking then because you are a capital business you have 
higher loan needs? Is that what you are referring to.
    Ms. Southwell. Yes, you have got to go buy the equipment 
before you can start making the product and sell it. So it's 
the capital needed to go get equipment to set up a new line to 
make the product.
    Mr. Schrader. Very good.
    Harry, where do we go from here then? Based on what you 
have been seeing with the Recovery Act rolling out, we had some 
testimony here that despite the fact that fees have been 
reduced and we're guaranteeing up to 90 percent of these loans, 
that it's passing by some of the small businesses in our 
community. Do you have a sense of next steps, based on what you 
are seeing out there right now?
    Mr. DeWolf. Well, we're seeing some positive trends. Again, 
it's bank money, it's not federal funds that are creating the 
loans. We're doing the guarantees, and so the loans have to fit 
within the bank's profile of loans that they are looking at. 
Now, I would like to work with Ms. Southwell on what type of 
loan she was looking at, what bank it was, was it a 504, was it 
a 7(a).
    Some of that's education on the bank's part, and we're 
doing a lot of effort to train the banks on what products fit 
the best. That's a continuous effort. I do see it is reduced. I 
mean the numbers show that it's--the loan volume is down, the 
loan dollars are down. 2007 we had an all-time high year, and 
since then it's basically gone the down slope.
    So there is no single answer. I think the Recovery Act no 
loan fees, has helped tremendously. The subsidized program with 
the ARC loan paying the interest for the banks, there is still 
some tentativeness with the banks on the ARC loan. There is 
some unknown answers, unanswered questions.
    Mr. Schrader. That's more from the government where to help 
you probably is their nervousness, I suspect.
    Mr. DeWolf. That's part of it. It's that 100 percent 
guarantee. It's too good to be true for some of the bank's 
process. The process is decent, it's normal for them, but the 
100 percent guarantee is--they are a little iffy on that, if 
it's really going to work. And we expect those loans to have a 
higher default rate. We're not advertising that, but that's 
just going to be reality.
    And some of the banks are very concerned on how that higher 
default rate will impact their numeric evaluation that we grade 
them on, and we're trying to persuade them and create a way of 
saying, no, these will be evaluated in a separate pool. So 
that's a lot of the hesitation.
    Albina Bank, as Mr. Brunberg has said, is leading the pack 
in Oregon. Of the 17 ARC loans, they have done 15 of them. 
Wells Fargo is coming up, but they are slow to act, and their 
application is quite lengthy. They are using a national 
clearing house system. So my local, regional, and community 
banks are actually leading the pack in Oregon on SBA guaranteed 
    Mr. Schrader. Very good.
    Mr. DeWolf. There is no single answer. It's interesting, 
it's important that people understand that this is bank money, 
and the banks are kind of stuck. They are stuck between the 
Treasury and the FDIC saying, you know, conserve capital; 
Treasury is saying lend, lend, lend. And everybody is saying--
so they are stuck.
    Mr. Schrader. We'll hear from them in a minute. Be very 
curious about their impression.
    Mr. DeWolf. It's a tough spot.
    Mr. Schrader. So let's--Jim, with the ARC loan, it's a new 
loan. It sounded--you know, I'm just a small business guy. My 
veterinary clinic in--I'm a real small, small business. I'm the 
opposite of Sheryl here. I'm a real small business. I don't 
mean real, real, but small small. And the $35,000 would have 
been nice.
    I remember getting my credit line canceled, actually, 
effectively a few years ago in one of the last recessions, and 
they converted to a loan, you know, and I had to pay myself 
down. It wasn't really helping me any. And there has been a lot 
of discussion that, you know, sometimes the SBA process has 
been a little bureaucratic, this, that, and the other thing.
    How was your experience a little different, or was it, you 
know, very bureaucratic and difficult? How long did it actually 
take you to get this loan? You applied. How difficult was the 
form to read and get through?
    Mr. Brunberg. Not difficult at all. Super simple. Yeah, I 
feel I'm a--you guys all have such keen financial minds in 
here, I have a feeling, because half of what you are saying I 
can't understand as a musician. But for me it was really easy 
to get this loan, yet I felt like I was making substantive 
promises to Albina that made them feel comfortable backing it 
    So it just sort of cut away a lot of the hundreds of pages 
of paperwork that had been involved in the previous loan, 
albeit that was a larger loan through the SBA. It just seemed 
like a very simple, straightforward offering of short-term 
capital. So for me it was just super simple. I don't think it 
took more than a week to fund. I think it was less than that.
    Mr. Schrader. That's impressive. But it's my understanding 
for these loans you have to show that you have a pretty 
reasonable expectation of paying them back.You have to have 
some plan.
    Mr. Brunberg. Yeah, and then it just has a--that as an 
individual I couldn't take money unless I had a plan to pay it 
back. Because I'm sure you feel that unless the animals were 
going stop getting sick, you would know that your clinic was 
going--you were going to continue to do business and that you 
recognized what you were going to use the funds for. It was a 
finite, dark hole that you needed to--the chasm was--there was 
a ledge on the other side you wanted to jump across, and these 
funds helped us to do that.
    Mr. Schrader. Good, good. I wish you success there.
    Wilda, you referenced in your testimony some of the state 
programs that are out there, the CAP program, the business 
development fund. Do you have a sense as to how they are 
working or stepped up? Or maybe go to Harry afterwards, if 
there is some interplay between the SBA and those particular 
    Ms. Parks. No, I don't. I know that when I talked to small 
businesses to prepare for this, you know, those were some of 
the programs that were mentioned. As you said, the CAP and the 
Business Retention Program, Business Development Fund and some 
others. So Oregon does have some abilities to work with small 
business, and also of course working with, you know, SBA.
    In our office we're right next door to Small Business 
Development Center in Clackamas County. And when I asked a 
number of people going in and out of the Small Business 
Development Center and stuff, you know, what could happen, what 
could occur to help your business financially, the main thing 
that I heard was banks need to loosen up their funding ability.
    And so I would say that it's the same kind of thing that 
was just recently said, that they have to trust that that is 
going to be an okay thing to do. And I'm not sure they trust 
that right now.
    Mr. Schrader. Sure, sure.
    Ms. Parks. So it's building that trust and helping to 
ensure that those funds would be available.
    Mr. Schrader. Very good.
    Harry, comment on that? Are you familiar with those 
programs, and is there some relationship there going on?
    Mr. DeWolf. The state and the counties and cities have been 
creating some good programs. We're trying to educate the 
banking community. We just finished a 13 city joint lender 
training where we worked with the USDA Rural Program, State of 
Oregon Economic Community Development, PDC, and any local 
Economic Development folks. We go around throughout the state 
training the banks on what programs work for what situations, 
because the SBA is not everything to everybody, neither is the 
USDA, neither is the state.
    But if the banks know where one program starts and where 
one program finishes, that helps. So we've been actively doing 
that. We've been doing that for three years now. We're the 
first in the country to do it. It takes a lot of planning and 
logistics to do that, but it's proven to be very, very 
successful. So we plan on doing that more.And this year we 
added on a public round table discussion about issues and 
elements that were involved in today's environment.
    Mr. Schrader. Let our office get a copy of any findings 
that came out of that. I'd be very interested.
    Mr. DeWolf. Absolutely. Absolutely. It's a matter of lender 
education, public education. And some of the programs are news 
to me when I find out about them.There are just so many little 
niche industry incentives or tax credits or funding 
opportunities out there, it's pretty much a moving target for--
at my level. I don't necessarily track or manage the state 
    Mr. Schrader. So the last question, I'm going to run 
through the entire panel on this one, is just a quick 
impression. It's a little bit of an unfair question, but--and 
we'll start with Wilda and go the other way here, and that's 
what penetration in the small business community do you think 
the SBA has? In other words, how many small businessmen and 
women, what percentage actually know they exist and are aware 
of some of the opportunities there? I'm just trying to get a 
    Ms. Parks. I wouldn't really have any sense of percentage, 
Kurt--or Congressman Schrader.
    Mr. Schrader. That's fine. Kurt is fine.
    Ms. Parks. However, I do know that in our Chamber Of 
Commerce, we communicate with about 1,400 email addresses 
consistently, and we have articles in our newsletter and in our 
weekly broadcast email about SBA opportunities on a consistent 
basis. So we're doing everything we can to keep in front of it.
    And then of course working with Small Business Development 
Center, a little bit different, but nonetheless, you know, the 
same family, next door, that enables us to get more information 
out. But we consistently, you know, tell people about it. I 
would hope that some nice large percentage of them are paying 
attention to that.
    Mr. Schrader. And the answer is join your chamber so you 
can find out what's going on.
    Ms. Parks. That's true. Thank you very much.
    Ms. Southwell. And read your emails, right.
    Mr. Schrader. Read the emails. Ms. Southwell.
    Ms. Southwell. I would say the awareness based on the 
communication that comes out, whether it's through the chamber 
or through some other agency or group that people are part of, 
I think maybe the awareness is there. I think the challenge is 
so many of us, especially in this environment, and I'll bet you 
had this happen (indicated), we're so, lean, everybody is 
running so lean, that the day-to-day business support and 
keeping things running really takes most of the working day, if 
not longer.
    And so it's bringing that information to business owners, 
and whether it's the bank or whether it's--like usually they 
come to you when they run into a problem and they are looking 
like where can I go and help. It's getting some of that out 
there via maybe the banks or some method, so that there is 
some--you know, when there is a lot of numbers and names and 
acronyms for loans, it's a little overwhelming. So I think it's 
that communication and understanding of what, how the process 
works. But I'll tell you, most of us are running. I mean there 
    Mr. Schrader. You are busy.
    Ms. Southwell. Yeah, yeah.
    Mr. Schrader. Jim.
    Mr. Brunberg. Ms. Southwell's points are, I'm sure, true 
for every small business owner, including yourself. I don't 
know how you find time to do this kind of stuff. But you put 
the time aside, I guess. The SBA, I was only made aware of 
their existence through Albina Bank. I knew what the SBA was as 
an abstract concept, but I didn't know how they administered 
their loans.
    So it was through just meeting with private bankers that I 
learned about the SBA. And the PDC had told me to go to Umpqua 
and Albina to look for an SBA loan. So I'm not sure what the 
budget is for outreach. I live in a newly economically 
rejuvenated district area, that the whole North Mississippi, 
North Portland area has radically changed its socioeconomic 
structure over the last five years.
    It's been one of the quickest changing neighborhoods in 
Portland. So there are a lot of small business owners who I'm 
sure are not aware of the SBA. I speak to them all the time. 
They say, "How did you do it? Where did you find the money?"
    And I'm, "Well, I just kept hammering my bank, you know, 
and calling them every week, and they were really good about, 
you know, getting information to me."
    But it's hard to find--Mr. DeWolf's organization, Portland 
Small Business Administration Office, I'd love to learn more 
about what they do and tell my friends about them so they can 
clog your phone lines and ask you dumb questions like I would.
    Mr. Schrader. Harry, comment? I mean I know you guys have 
been cut back dramatically over the last eight, ten years, or 
whatever, so that's part of it.
    Mr. DeWolf. In 2000 we had a staff of thirty. I have ten 
now. It's been challenging. As you know, I've been working 
diligently over the last four years since I've been with the 
agency to open a Southern Oregon office, to expand our reach. 
It's greatly underserved down in the Medford metro, south of 
Eugene area.
    But we work very, very hard using technology. As far as our 
reach, it's not as deep and broad as I would like. Coming from 
outside the agency, I use what I would consider current 
technology to get the word out. We were the first in the 
country to use an E-newsletter that we send to all the 
chambers, all the media outlets, all community leaders, state 
and federal partners.
    We have over 5,000 subscribers, and it's through a modern 
technology called Constant Contact. And that helps.We get the 
word out for that. We do local statewide public loan briefings 
to the general public. We have over 15,000 hits on our website 
that I keep up to date every week. It's very important to me. 
So there is--working through our small business development 
centers, they are our lifeline to the public.
    They are in every community college throughout the state. 
There is 19 in Oregon, and I have two in southwest Washington. 
Without them we would be far less effective than we currently 
are, and we are not as effective as I would like to be. So with 
the state reducing the funding to SBDCs 50 percent, that will 
have an impact, a negative impact.
    And from the state's--from my view of that, I think the 
state is very shortsighted on that, because they are going to 
lose small business creations, they are going lose the tax 
base, they are going to be paying more unemployment. It's very 
shortsighted, because the federal--I pay a million dollars to 
the SBDC program.
    The state's requirement to that, to get the million 
dollars, is to match it. Before the 2010 budget was written out 
the state was doing a two-to-one match, which was quite noble, 
and now it's barely matched. And having a substantial cut, as 
they are going have, they will be reducing their locations 
probably down to close to 15. So I don't see every community 
college having an SBDC active, open office. And that's a shame. 
Without them, without SCORE, I couldn't do what we do.
    Mr. Schrader. It's all about leverage.
    Mr. DeWolf. I would just be answering the phone and not 
getting out of the office. It's leveraging current assets.
    Mr. Schrader. Yeah. Very good. Well, thank you all very 
much. Appreciate you coming and testifying and taking time out 
of your busy days, and we'll let you excuse yourselves and get 
the next panel up. Thank you so much, guys.
    Mr. Schrader. All right. The next panel will come up front 
here, some of our lenders, give us some perspective on the 
lending side. They are feeling, I think, a bit squeezed. On the 
one hand, Congress and Treasury say lend, lend, lend; and the 
other hand, the regulators push back a little bit, saying well, 
now we want to make sure you have good balance sheets and we 
don't make this maelstrom even worse.
    So it should be very interesting. I think even in our last 
panel we'll have some community banks give us a little 
perspective also, and hopefully have a lively discussion. We 
can learn quite a little bit.
    Well, the same ground rules apply. Theoretically you have 
got about five minutes. As you saw, we were a little bit more 
lenient than we would be back East, but this is Oregon. So I 
want to make sure you get as much out as you can, but leave 
time for a little bit of questions. There is only two of you, 
so that should make it a tad easier. And appreciate your coming 
very, very much. Your perspective is going to be critical to 
freeing up our credit markets and making things happen.
    Our first witness, if you will, is Mr. John Safstrom. He's 
here to testify on behalf of the Mid-Willamette Valley Council 
of Governments, where he serves as business finance manager. He 
has a lot of expertise. He previously served as credit and loan 
officer with the Farm Credit System, that I used when I started 
my veterinary clinic, frankly.
    He also was production manager for Weyerhaeuser, 
supervising logger operations in Southern Oregon, and spent 
five years as a commercial fisherman. You have traveled.He's a 
graduate of Western Washington State University and Pacific 
Lutheran. And I'm looking forward to hearing your testimony. 
Please begin.


    Mr. Safstrom. Well, thank you. I am the loan program 
manager at the Mid-Willamette Valley Council of Governments. I 
also serve as a senior loan officer for Cascades West Financial 
Services, the largest Oregon-based certified development 
company, also known as the CDC, that provides the SBA 504 loan 
program to businesses throughout Oregon, and a piece of 
Washington now, I guess.
    I would like to thank Congressman Schrader for his 
continued support of the CDCs and the 504 program, as well as 
our regional loan programs. He helped establish one of the loan 
programs while he was a county commissioner at Clackamas 
County. Today I am very pleased to--
    Mr. Schrader. That would be my lovely wife.
    Mr. Safstrom. --provide a statement about a need to improve 
access to capital for small businesses. Our typical day is a 
test of our creativity--finding ways to work around regulatory 
limitations of the SBA and other federal and state loan 
programs to structure small business's financing proposals, and 
then getting banks to participate in them; all of that, added 
to the fact that our national economy is now in the middle of a 
credit crisis.
    And, yes, we do have ideas on how to improve access to 
capital with the SBA 504--the SBA loan programs, more than the 
504. Even as SBA has worked to implement new programs and fee 
reductions that were spoken about earlier with the 2009 
stimulus bill, the SBA's program eligibility and underwriting 
policy, so critical to maximizing effectiveness, are drifting 
instead towards more conservative and restrictive 
    For example, SBA moved to restrict 504 borrowers from 
accessing their personal home equity for funds to use in new 
504 projects. NADCO, our Association of Certified Development 
Companies, has prevailed on SBA to reconsider this negative 
impact. We are hopeful that SBA will again allow business 
owners to inject capital in any way possible into their 
businesses. As we know working around entrepreneurs, they are 
all in at all times.
    We believe that many small businesses need better access 
for loans and access to larger guaranteed loan amounts. The 
current restrictions can be addressed in these following ways: 
First, increase the maximum 504 to venture beyond its current 
limit of $1.5 million; second, allow borrowers to use both the 
maximum 504 and 7(a) loan limits; third, eliminate regulation 
that restricts business owners with higher net worth from 
participating in 504 loan projects; fourth, allow small 
businesses being acquired by new owners to make eligible fixed 
asset transfers through the sale of stock; fifth, SBA restricts 
assisting rural borrowers by applying outdated population 
parameters. We request that more current U.S. Department of 
Agriculture definitions of rural areas business be applied to 
SBA programs, increasing the availability of capital in rural 
areas; and, sixth, allow the 504 program to refinance existing 
conventional bank loans in the process, bringing equity and 
working capital, especially refinance bank loans to companies 
written with five-year call provisions.
    This last suggested change comes from concerns that banks 
do fail or have substantially tightened their lending 
standards. In either case, performing loans to good companies 
are being called, forcing these historically good small 
businesses with performing loans into foreclosure and causing 
jobs to be lost. These companies chose this type of financing 
when commercial mortgage-backed security industry was active, 
and five years later they would have choices.
    The reality now, capital markets are frozen and banks are 
restricting lending. Refinancing with the SBA 504 loan 
structure is a sustainable alternative. The company gets a 
fixed rate, lower-than-market rate of interest over ten or 
twenty years, and the bank loan is structured for the 
commercial-backed securities industry when that recovers.
    It's a win-win for businesses and banks, and we support 
this time is of the essence SBA change.
    Those are just a few of our ideas about access to capital. 
We have some other ideas about the costs that were mentioned 
earlier, and I can go into those now. Basically, there are 
three areas, the cost to borrowers; the cost to our CDC 
operation, such as Cascades West Financial Services that we are 
a part of; and the recovery on loans that are in liquidation.
    SBA informed us that the 2010 budget increases the cost of 
the 504 Program to borrowers by 38.9 basis points per annum. 
This is due to the SBA's econometric subsidy model that 
includes the national employment rate and the forecast of 
defaulted loans.
    We request that Congress appropriate sufficient funds to 
offset this fee for the next two years, while businesses grow 
healthy and get cash flow back, so they could pay these 
increased fees at a later date. Sorry. One more minute. All 
right. Speeding up.
    The cost to our--one more sentence on that. It just doesn't 
seem right to in the stimulus package take, you know, fund 
cost, lower cost and everything, and eight months later raise 
these costs. It just doesn't seem right on that side. For the 
regulatory problems we're having with our CDC, a few years back 
SBA decided one type of structure of a model of a CDC fit all.
    In our area three councils of governments provide all of 
the program management and all of the staff for a CDC. That was 
deemed not quite the right structure. We have had more 
regulatory hoops to jump through, and it has been a very 
substantial cost to our collaborative based model. In summary, 
I guess I would like to say working together we will be more 
creative and flexible, serving the needs of new industries and 
tearing down the walls for arcane and irrelevant and 
restrictive regulations, I hope.
    And these unnecessary barriers are going to stifle our 
movement into the 21st century economy. I have many more things 
to say, but I guess that's all I can say now. And small 
businesses are nimble and very forward thinking, and they will 
lead us out of the recession. Thank you.
    [The statement of Mr. Safstrom is included in the 
    Mr. Schrader. Very good. Thank you for your comments. We 
have a new SBA director that I think is going to be very 
receptive, hopefully, especially in this economy. So you have 
very good ideas. You came in with some excellent, excellent 
ideas. Appreciate it.
    Mr. Safstrom. I have more, too.
    Mr. Schrader. Good. I'll submit them for the record if they 
are not already.
    Mr. Safstrom. No, no, they are submitted, yeah.
    Mr. Schrader. Okay. Good.
    All right. Our next witness is Mr. Rick Hein, currently 
serving as president of Oregon State University Federal Credit 
Union. He has served on the OSU Federal Credit Union's 
leadership team since April 2000. Before joining OSU he worked 
at the credit union mutual group of Madison, Wisconsin, and 
also served a two-year stint as member of the board of 
directors for the California Center Credit Union. You are a 
credit union guy.
    He is a graduate of Texas Christian University. He serves 
on numerous advisory boards and committees, including the 
Willamette Criminal Justice Court, the Corvallis Corporate 
Round Table, and the Boys and Girls Clubs of Corvallis. Thank 
you for doing all that. In 2005, he was selected as the Credit 
Union Association of Oregon advocate of the year. I look 
forward to hearing your testimony. Please begin.

                     STATEMENT OF RICK HEIN

    Mr. Hein. Thank you, Congressman Schrader. It's a pleasure 
to be here and to be invited and to represent the 83 credit 
unions of Oregon and the 1.4 million members.
    America's small businesses are the engine of growth of our 
nation's economy. The effect of the sub prime mortgage crisis 
has spread to all types of lending, resulting in a decrease in 
availability of business credit. As Congress continues to 
consider ways to help the economy recover, Oregon credit unions 
support the elimination of the statutory cap on credit union 
member business loans.
    Last week, representatives Paul Kanjorski and Ed Royce 
introduced HR 3380, the Promoting Lending in America Small 
Businesses Act, which would increase the credit union member 
business lending cap to 25 percent of a credit union's total 
assets, raise the de minimum threshold for a loan to be 
considered, a member business loan, to $250,000, and exempt 
loans made to nonprofit or religious organizations, as well as 
loans made to qualified underserved areas from the cap.
    These changes to the current statutory restrictions on 
credit union member business lending will give credit unions 
currently serving the lending needs of their business-owning 
members the opportunity to help even more, and it will 
encourage credit unions that do not currently offer these loans 
to consider investing the necessary resources to do so. We look 
forward to its enactment.
    The cap on credit union member business lending, currently 
at 12 and a quarter of total assets of the credit union, has no 
economic, safety and soundness, or historic rationale. The cap 
was enacted in 1998, and prior to 1998 there was no cap. After 
a decade it's time to remove this arbitrary restriction. Credit 
unions have been lending to their business-owning members for a 
century. Net charge-offs for credit union loans are lower than 
charge-off rates for business loans made by other financial 
    And at a time when lenders are withdrawing credit from 
America's small businesses, it makes economic sense to restore 
credit unions' full ability to lend to their business-owning 
members. The Federal Credit Union Act was passed 75 years ago 
to promote savings for provident purposes to balance the credit 
structure of the United States. We have successfully been that 
balance for over 75 years, and the American consumer has an 
alternative for fair and equitable financing.
    If there was no statutory cap on the amount of business 
lending a credit union could lend, the Credit Union National 
Association estimates that credit unions could make up to an 
addition $10 billion in business loans in just the first 12 
months. This represents a significant economic stimulus that 
does not cost the tax payers a dime and does not expand the 
size of government.
    According to the Credit Union National Association, at the 
end of 2008, 44 of Oregon's 83 credit unions reported 
outstanding balances from member business loans. The average 
member business loan granted in Oregon in 2008 was over 
$284,000, and the market share of lending for Oregon credit 
unions is just over 4.7 percent, compared to 95 percent for 
banking institutions.
    Finally, Oregon credit unions have a total balance of $758 
million in member business loans, compared to roughly $15.3 
billion in total business loans for Oregon banking 
institutions. Credit unions are, by definition, locally-owned, 
controlled, with local decision-making and a strong service-
oriented philosophy.
    Member-owned credit unions are a natural choice for 
business owners faced with challenges getting access to credit. 
Today Congress has the opportunity to help small business 
owners by eliminating the credit union member business lending 
cap. Thank you for this opportunity to testify today.
    [The statement of Mr. Hein is included in the appendix.]
    Mr. Schrader. Very good, Mr. Hein. Thank you. Thank you 
very much. I appreciate the testimony.
    Let's go to John right away, and give you a chance to talk 
a little bit about some of your other ideas that you got 
withheld in the official part of the testimony. If you want to 
hit on a few other points for a few minutes, please go ahead.
    Mr. Safstrom. Okay. Another one that's a cost savings that 
will fit into what I talked about briefly was the increased 
cost to the program by the 38.9 basis points to the borrowers 
because of the default rate in the subsidy model.
    And one thing to note, that the SBA 504 loan program has 
been off the subsidy until the stimulus package brought in 
funding certain fees that were before borne by both the CDCs, 
the Certified Development Companies, such as Cascades West. The 
banks pay a fee for the privilege of financing with us, and the 
borrowers pay a fee, and that was rolled into their interest 
rate matrix, you might say.
    And for the folks who don't understand the 504 loan 
program, debentures are sold on Wall Street to insurance 
companies, banks, foreign governments, and everything else in 
the bigger spectrum of things. And then those funds are really 
lent to the borrower with a spread like a bank or a credit 
union would do. But those were just--those are statutory costs, 
and costs such as this subsidy fee impact would raise that 
effective interest rate to the borrower.
    To drop that, one of the problems is the cost of collecting 
loans and recovery on these loans that are already out there. 
And Congress several years ago enacted--well, I guess--I don't 
know how to say this--got SBA to create a new regulation to 
take advantage of CDCs such as the one we work with, and the 
Council of Governments, that do collect loans routinely, to use 
our staff to do that service.
    One of the problems is that they haven't done that. It's 
been a very, very limited effort; and when it's done, it's done 
with more of a--I don't know how to say this.You are told what 
to do. It's kind of a--you are dictated how to do it, what to 
do, and not be able to do the collection. The collection is 
done on a kind of a dynamic effort, and it's not something done 
from a central servicing place and then you tell somebody to do 
    It's done on the move. To speed that up, we would like have 
SBA use our services and also pay us for them.Right now we're 
not getting paid to do it, and so it's quite a drain on really 
our whole economic development effort to place staff time to do 
    And as another piece of that, we would like to have SBA 
actually have an accounting system where we can tell the 
borrower what their borrower balance is on any day; and also, 
in this electronic age, be able for the borrower, if they are 
in a defaulted loan and it's been repurchased back and all of 
these other things, that they can actually send a wire transfer 
in to pay their loan down or use an ACH.
    That currently is a big issue, and it doesn't make any 
sense. And we feel that if the CDC that wrote the loan has to 
collect the loan and has to go through these processes, we 
would like to be able to use the current electronic age to help 
us, and actually tell the borrower, you know, what their 
balance is. Right now that's not possible. There is a 
disconnect between that.
    I could go on and on with some more ideas, but those are 
the basic ones. We want to save costs, and we're looking to 
expand access to borrower's financing. And I have to say, the 
one around the--probably people miss some of the pieces that I 
put, but the one about purchasing a business through the 
transfer of stock, that has been prohibited by SBA.
    There is this one line, "You shall not finance the purchase 
of stock." But if the stock is equal to the amount of the fixed 
asset that you are financing, why not allow that to happen. And 
we have had that situation here, and I cite that in the written 
testimony, that it would have been a very important financing 
option. And the other option that occurred--
    Mr. Schrader. If I may, do you know why that was put in 
there? That predates my tenure in the Congress, obviously.
    Mr. Safstrom. I would assume to stop certain transactions 
that were taking advantage of SBA or something like that. But 
there seems to be a way--there is a philosophy to restrict, 
versus open and look at the bigger picture. And each financing 
proposal is always different than the next one.
    They are not all cookie cutters. You know, every 
entrepreneur has a different situation. Like the lady that was 
speaking about her polymer company, I mean we work those kind 
of situations out using sometimes a combination of loan 
programs, if not the SBA.
    Mr. Schrader. So what other local governments, or how 
should the SBA work with local governments more? To put through 
the CDCs or are there other avenues that we could be engaged 
    Mr. Safstrom. Well, in the state of Oregon, all of the 
Oregon-based CDCs have loan programs similar to the ones that 
we provide. Maybe not quite as many, but similar. The rural 
development, IRP Program, the EDA revolving loan fund, that 
kind of thing. And you know, those are just the general 
categories. And they can work in partnership with the SBA loan. 
Up to 50 percent, no more than 50 percent federal financing. 
But in that scenario we could put 100 percent finance into 
small businesses after this.
    Mr. Schrader. We are going to get some competition here, so 
I hope everyone can still hear, it sounds like. Rick, I guess 
to you, I mean Craig has been trying to get some of these loan 
limits lifted for quite sometime, and it's always been a little 
    And I don't want to rehash the old bank versus credit union 
debate here, but it does seem like--I guess my question to you 
is, what is the appetite in the credit unions, especially right 
now, when times are so bad and regulators both for credit 
unions and banks are cracking down a little bit--and, you know, 
frankly, being good financial managers, you guys want to make 
sure you stay solvent in this terrible time. What's the 
appetite for credit unions to really jump in and maybe do some 
of these small business loans that maybe don't even pencil out 
for banks, even when times are pretty good?
    Mr. Hein. Well, I think one of the advantages--
    Mr. Schrader. Would you get to the mic a little bit? Pull 
it right up, given our competition.
    Mr. Hein. I think one of the advantages credit unions have 
had over the years, the past 75 years, is that we look at our 
members as part of the community. And then I'm sure the 
community banks have done the same thing, as well as the--
    Mr. Schrader. That's true. The community banks are a little 
different sometimes, than more of the big Wells Fargo types.
    Mr. Hein. Right. And, well, I think the credit unions have 
a great appetite for helping the small business owners. Credit 
unions have gone out and looked even--and created micro loans 
for even smaller business owners, those that need, you know, a 
$3,000 loan. And they really have no collateral. They are just 
trying to figure a way to start their little business up.
    Many credit unions have began those micro loans. What has 
really hampered some of the credit unions from getting into 
this type of line of business is the start-up cost of hiring 
personnel, making sure you have the expertise as required by 
the National Credit Union Administration, and getting 
everything ready so we can do things right.
    One of the things I'd like to point out also is credit 
unions have been doing mortgage loans for years. We have no 
cap. Credit unions have been having credit cards.We have no 
cap. Credit unions have been doing consumer loans for 
automobiles and everything. We have no cap. But we have a cap 
on member business loans. Why is that different?
    There really is not a huge difference there. We continue to 
follow safety and soundness guidelines. We're heavily regulated 
by the National Credit Union Administration, and we follow 
those guidelines as they are prescribed.
    Mr. Schrader. Recently our Small Business Committee has 
been looking at new proposals to increase the outreach that we 
hear is critical here, but particularly with credit unions, 
trying to get credit unions more actively engaged in the SBA 
lending program like 7(a) and 504. Can you comment on the type 
of support and outreach that would be most effective, based on 
your experience.
    Mr. Hein. Well, from what I've learned regarding any type 
of government guaranteed loan, members come in, and they are 
really excited about the opportunity of getting a government 
insured loan through a financial institution, whether it's a 
credit union or even a community bank.
    But one of the issues that they find out is that there is a 
huge amount of paperwork that they are going to have to 
participate in, and there is a lot of information that they are 
going to have to provide. And a lot of folks, when they realize 
that, it kind of turns them off. It's just, you know, I just 
can't go through all of this. I'm kind of looking for that 
service that I've received on my car loan and on my home loan, 
and now I'm going have to jump through a lot of hoops to just 
qualify for the loan.
    Mr. Schrader. Okay. Very helpful.
    Well, we've got a big third panel, so I'll let you 
gentlemen go. Thank you very, very much. Really appreciate the 
    We've got our third panel up with more solutions, 
hopefully. This is a bigger panel, so I'm going to be a little 
tougher on the time limits, guys, to make sure everyone gets a 
chance to talk, and maybe I'll get one or two questions in. 
Because we'll shut her down around ten, to respect everyone's 
time and efforts. Great panel, though. This is probably one of 
the core pieces of why we're here.
    Mr. Schrader. Well, we'll start out with Ms. Kim Wilmes. 
Ms. Wilmes is here testifying on behalf of Metal Innovations, 
Incorporated, which she co-founded with her husband, Craig, in 
1996. Metal Innovations is based in Aurora, and specializes in 
fixed-wing and aircraft structural repair, modification, parts 
manufacturing, and product development. Their clients include 
Alaska Air, FedEx Cessna Caravan Fleet, and SkyWest.
    She is a native Oregonian, who previously served as 
executive director of the Pacific Northwest Aerospace 
Association, and she also sits on the Enterprise for Employment 
in Education board, taking an active interest in K-12 education 
and reform. Thank you very much for doing that. You are a very 
busy lady.

                    STATEMENT OF KIM WILMES

    Ms. Wilmes. Thank you, Congressman Schrader, for taking the 
time to listen to small business concerns regarding the 
difficulties that we are facing in today's economic 
    Mr. Schrader. You are going to have to eat the microphone 
in case they start drilling again.
    Ms. Wilmes. Okay. The lack of importance placed on small 
business's contributions to our country's employment has been 
disheartening. Although many elected officials have spoken 
regarding small business concerns, the rubber has never met the 
road by providing any useful solutions to help alleviate the 
closed credit markets. Little, if nothing, has been done to 
provide economic stability to this critical piece of our 
country's economy, small business.
    As a small business owner yourself, you understand the 
sacrifices that are made to follow your dreams, start a small 
business, create jobs, pay taxes, et cetera. Small business 
owners understand all too well what it's like to mortgage their 
home, sell a vehicle, cash in retirement, and extend credit in 
any way possible just to be able to have enough money to 
establish a business and follow a dream.
    We as small businesses risk a lot to be useful contributors 
to society, which is very apparent in the number of jobs that 
we create and consistently provide. The numbers are laid out in 
black and white. As stated in an article located on the "Oregon 
Labor Market Information System," on 6/23/2009, the U.S. Small 
Business Administration claims that 99.7 percent of all U.S. 
firms are small businesses, and that these firms have created 
between 60 and 80 percent of all new jobs over the past ten 
    So if this is the case, why has small business been almost 
completely overlooked through the allocations provided through 
the recovery plan? And even more critical, why have the banking 
difficulties for small business only half-heartedly been 
addressed? I was extremely concerned when I watched an 
interview on 7/27/2009 with Robert Gibbs. His words were 
directed towards the health care reform package: "If we do 
nothing, millions of people are going to lose their health 
insurance. If we do nothing, millions of small businesses 
aren't going to be able to afford the coverage that they 
already provide. Some of them are going to have to lay people 
    Let's stop right there. Health insurance coverage 
affordability is not going to cause me to lay people off. We 
currently and have always provided fully paid health insurance 
benefits for our employees and their families, and I have never 
considered laying off an employee due to the cost of health 
care insurance.
    All this statement tells me is that the agenda focus is 
only based on the interest of the elected and not the true and 
immediate needs of their constituents, especially small 
businesses. We eventually need to address the health insurance 
costs; but if you truly want to help small business, the focus 
needs to be placed on opening up of the credit markets.
    Let me provide you with a short example in the form of an 
equation. No credit for small business in the form of credit 
lines, expansion loans, refinances, et cetera, equals layoffs, 
equals business closures, equals who cares about health 
insurance costs. Pretty simple.
    The only stab at helping small business has been addressed 
through increasing SBA guarantees and providing fee waivers. 
Sounds good on paper, but for those small businesses try to 
renew a loan, credit line, or access new credit, this solution 
is virtually useless to most due to the unrelenting credit 
    Much of the general population doesn't realize that to 
attain an SBA guarantee you must first have a bank that is 
willing to house the loan. Good luck in finding a bank to 
participate. They are few and far between.
    Many of the companies being required to have SBA guarantees 
are only facing this requirement due to the bank's ability to 
take advantage of a system that will guarantee their risk at 
only 10 percent. What a luxury. I'd love to have someone give 
me hundreds of millions in TARP money and have someone else 
pick up 90 percent of the risk on my business decisions.
    Here are a few examples of companies' experiences regarding 
funding difficulties that I have encountered over the past few 
months. You must also be aware that the banks mentioned in the 
following examples have received hundreds of millions in TARP 
funds. Our line of credit with Sterling Bank came due in 
October 2008. We were told in September that it would not be 
renewed. We began to do month to month renewals on our line of 
    After four months of exhausting our resources and not 
finding any new banking options, Sterling decided that they 
could possibly renew our line of credit with a state guarantee 
and additional covenants. The covenants proposed would have 
caused us to close our businesses within a matter of days after 
signing. We had worked too hard and sacrificed too much to 
allow this to happen.
    What was most upsetting is that we had always paid our loan 
pavements on time, had never defaulted on a bank loan, were 
posting record year-end profits, had several long-standing 
contracts, with our monthly short-term work load consistently 
equaling over $1.6 million in work in process, and were hiring, 
not laying off, employees.
    After five months of interviewing 17 different lending 
institutions, we found a bank that was willing to work with us, 
and we feel very fortunate that we've established this 
relationship. And we did have to access a state guarantee for 
that, to complete the move. Most businesses have not been so 
    The scenario is being experienced by small businesses 
throughout our country. I've received several calls in recent 
weeks from companies in crisis due to the closed credit 
markets. A company that had been operating for over 40 years, 
unable to access refinancing for the commercial property 
housing their business, they were on a two-year renewal cycle.
    Their current lending institution is not willing to renew 
the loan. If the loan is not renewed within one to two months 
they will be in default and lose everything. What will the 
result be? Complete closure, loss of commercial property, and 
job loss.
    A very viable machining business that needs a couple 
hundred thousand dollars to increase their line of credit to 
facilitate a new contract, thus creating jobs, even with their 
impeccable credit history they were unable to access the 
increase and had to turn the contract away. What was the 
result? Loss of opportunity and jobs.
    As you can see, it is not just one industry that's being 
affected by the closed credit market. It is affecting small 
business across the board. I have heard from numerous lenders 
that they are open for lending. Don't believe it. What banks 
are saying and what small businesses are experiencing are two 
different scenarios.
    As a small business, we generally run very lean operations 
and take a personal interest in our employees and their well-
being. We will sacrifice personal financial stability to assure 
that our employees receive their paychecks and can put food on 
their tables. We cannot afford to individually hire expensive 
lobbyists to promote our cause. We rely on our elected 
officials to make decisions that are in the best interest of 
the majority, including small business.
    I'm asking for your help in opening the credit market for 
affordable and accessible financing options for small 
businesses. Please do not turn your back on all the small 
businesses that have sacrificed so much to provide employment 
opportunities for our citizens and to follow their dreams of 
owning their own business.
    Thank you for your time.
    [The statement of Ms. Wilmes is included in the appendix.]
    Mr. Schrader. Very good. Very good. Nice job.
    All right. Let's go to Mr. Harville. Tough act to follow. 
Mr. Harville is here to testify on behalf of SEDCOR, that does 
a lot of good work, where he serves as its retention-expansion 
manager. Since his arrival in our great state in 1987, he has 
served as the executive director of the Lincoln County Humane 
Society, director of the membership of the Newport Chamber of 
Commerce, and is executive director of the Woodburn Chamber of 
    He has been nationally recognized for his work with both 
the commercial fishing industry, his work for Economic 
Development in the gold mines in Appalachia, and also serves on 
the Agribusiness Council of Oregon Board of Directors, the 
Advisory Board for Silverton Hospital network, the Economic 
Development Advisory Board for Dallas, and he also serves on my 
Small Business Advisory Board. Thank you, Nick. So look forward 
to your testimony. Please proceed.


    Mr. Harville. Thank you, Congressman. First, what is small 
business? In Oregon, 80 percent of the companies have less than 
ten employees. If, as in most federal programs, you use the SBA 
definition of small business, this region's largest employer 
with 500 employees is considered small. Thomas Jefferson said, 
"Were we directed from Washington when to sew and when to reap, 
we should soon want bread."
    The current recession was triggered by a collapse of the 
housing market. This was aggravated by the revelation that the 
mortgage market had been distorted, which in turn led to 
practices in financial markets that brought down and endangered 
the existence of many prestigious financial institutions.
    Trouble in banks then led to tight money, a general 
slowdown in the economy, lost jobs, and a worsening in the 
housing crisis that started the whole thing in the first place. 
Finding money in today's banking environment is a company's 
largest concern and challenge, and rightfully so.
    Small businesses are constantly planning capital needs and 
investing time with lenders to plan financial needs. Today 
lenders won't even look at good deals, let alone anything that 
may be slightly out of the box. Unless you have all the cash 
required to launch or expand your business, one of the most 
challenging aspects of running a small business is locating 
resources to raise money. Raising capital is the most basic of 
all business activities.
    But as many entrepreneurs quickly discover, raising capital 
may not be easy. In fact, it can be complex and a frustrating 
process. However, if you are informed and have planned 
effectively, raising money for your business will not be a 
painful experience. Whether your business needs funds due to 
unforeseen expenses or you are looking to expand, you will need 
to communicate with investors.
    They are interested in the quantity of capital you need, 
your product, your company, your financials. And sometimes 
today that isn't enough. The most important things they look at 
are your business plan, management team, your track record, and 
your exit strategy. This information is critical to them so 
they can understand how they will get their money back.
    But even with a government guarantee, they want only the 
cream deals. They have tightened even older companies' 
financial agility to reach new market opportunities to almost 
nothing. Orders back up because company A can't get an increase 
in their credit line, let alone a term loan. So company B sits 
waiting for things to loosen up again, which means that company 
C can't take the parts that company B needs to make sales to 
company A. The adverse effect ripples all the way down the 
supply chain.
    Since October, the U.S. Treasury has been buying stock in 
banks around the country as part of the capital purchase 
program. Initially the program's money was to be used to prop 
up troubled banks. More recently, the Treasury has been buying 
stock in healthy banks, with the goal of encouraging those 
banks to turn around and lend out money to customers.
    Despite that encouragement, lending is in gridlock. Most 
consumers know what the "Wall Street Journal" proved on July 
27, 2009. The total number of loans held by 15 large U.S. banks 
shrank by 2.8 percent in the second quarter. All you have to do 
is talk to your friends and neighbors about lending, and you 
will find story after story about the difficulties getting a 
loan for a mortgage.
    The numbers underscore the two related trends weighing on 
the economy. Financial institutions are clamping down on 
lending to conserve capital as a cushion against mounting loan 
offices. The loan demand is falling as companies shelve 
expansion plans and consumers trim spending to ride out the 
    That combination is making it harder for the U.S. economy 
to rebound. Some analysts predict that the loan portfolios 
won't start growing until the second half of 2010. As firms 
continue to downsize, cut costs, reduce inventories, the 
nation's largest banks are reporting that demand for credit in 
commercial real estate market is well below normal levels, 
according to the U.S. Treasury Department monthly banking 
lending survey from the largest 21 recipients of government 
bail-out money from the capital purchase program.
    After private investors grew reluctant last year about 
buying SBA loans from firms that finance them, these firms 
found themselves way down with old loans, which prevented them 
from funding new loans for small businesses. The recovery of 
the SBA credit markets has been a rare bright spot for small 
business lending.
    While SBA loans remain a fraction of the overall credit 
issued to small businesses, these government-backed loans have 
been on the upswing since Congress approved the 
administration's $787 billion economic stimulus package in 
February. That legislation waived many of the fees that banks 
paid to the government for offering SBA loans, and raised the 
public guarantee for the losses up to 90 percent.
    In the July 27, 2009 daily finance, more than half of the 
new loans made by the banks in April and May were for 
refinancing mortgages and renewing credit to the businesses, 
not new loans. Some analysts don't expect to see loan 
portfolios grow until the second half of 2010.
    Consumer spending has led us out of most of the recessions, 
but consumers can't help this time because credit is so tight. 
Trillions are being thrown at the problem, but we don't seem to 
be getting any bang for the buck except helping the banks to 
turn a profit. It's time to stop worrying about Wall Street 
profits and start worrying about Main Street in the new 
economic policies.
    If we want to make SBA programs work, then let them be 
industry driven. Let industry, who are the borrowers, tell you 
what is wrong with the SBA system. They know what could be done 
to fix it, if policy makers will listen.
    [The statement of Mr. Harville is included in the 
    Mr. Schrader. Very good.
    Our next witness is Mr. Terry Brandt. He's the executive 
director and board member of Albina Opportunities Corporation. 
I had the chance to visit with him the other day. He has over 
30 years experience, specializing in commercial real estate 
development in the Portland metropolitan area, with project 
management consulting and entrepreneurial small business 
    He's been active as a board member and advisor for a number 
of municipal task forces and committees and nonprofit 
organizations throughout his career that have supported 
community sustainability and small business development. I 
welcome you to the committee, Terry.

                   STATEMENT OF TERRY BRANDT

    Mr. Brandt. Thank you very much, Congressman. I am pleased 
to be here and appreciate the invitation to testify before the 
distinguished House Small Business Subcommittee on Finance and 
Tax. I am the executive director of Albina Opportunities 
Corporation, also known as AOC, a nonprofit lender with a 
mission to spur entrepreneurship and provide credit to women, 
minority, and disabled-owned businesses in low to moderate 
income communities and CRA qualified areas in the Portland 
    AOC desires to make loans to borrowers that have been 
traditionally underbanked and underserved in our communities. 
We leverage our loan funds by partnering with bank and non-bank 
lenders on specific loans. We provide the gap funding necessary 
to help mitigate loan risks to our participating lending 
partners on small business loans.
    By subordinating our interest in our loan to the interest 
in the loan of a participating bank, AOC provides more security 
for the bank, and thereby increases the ability of the small 
business entrepreneur to obtain needed financing. The reason I 
am here testifying today is because events now occurring in the 
financial marketplace, as we have heard so far today, are 
having a detrimental affect on our ability to make small loans 
to qualified businesses to whom we would like to provide 
    We have tried to find ways to fund loans in light of recent 
stricter bank loan underwriting standards; however, we are 
unable to make loans to credit-worthy small businesses when 
banks use blanket non-starter underwriting criteria that 
preclude any discussion at all. In addition, without a 
partnering bank or non-bank partner lender, AOC is not able to 
obtain an SBA guarantee for its qualifying loans.
    Traditional bank lending resources have pulled back from 
the lending marketplace for a number of reasons, including 
increased borrower scrutiny and stricter loan underwriting 
criteria. AOC wants to continue to provide financing to 
businesses, and to do that it is important for us to find 
sources of loan capital and loan guarantees until the banks 
return to this market.
    We believe the only source for such capital and guarantees 
may be the federal government. What happens to small business 
lending when banks collectively contract and traditional 
financing routes dry up? Lenders that adopt all or nothing 
restrictions and responses to problems do not consider the bulk 
of loans that can be effectively underwritten.
    Their over response to perceived problems results in 
stifling the growth of good small businesses. Lender 
underperformance and lack of creativity will not solve the 
lending log jam. With the exception of the micro loan program, 
almost all the lending in the SBA's tool kit is done by banks. 
If for some reason these lenders simply cannot or will not lend 
money to small businesses, the predominant SBA 7(a) loan 
guarantee program will be significantly underutilized.
    AOC has been challenged to find ways to establish 
partnerships with SBA-approved bank lenders, given many of the 
reasons previously stated. As an example of a recent response 
to this challenge, AOC has offered to mitigate the perceived 
risk in a prospective loan by agreeing to fully subordinate its 
position of its SBA loan guarantee to a lending partner.
    In essence, by financing only the guaranteed portions of 
AOC's loans, a bank would receive a 100 percent guarantee from 
the SBA on any of its loans. At this time AOC has yet to find a 
bank or non-bank lender willing to partner on this loan. In 
addition, without a bank partner, AOC's ability to obtain an 
SBA loan guarantee is restricted, unless it could also be 
approved as a non-bank lender by the SBA.
    AOC's small business lending program may be considered not 
too dissimilar to the SBA's dependence on bank and non-bank 
lenders to administer its loan guarantee program. Both 
organizations are dependent on its lending partners. Until 
banks return to this market, we will be unable to satisfy the 
demand for loans needed by our local small businesses.
    To mitigate these problems, we offer two recommendations. 
One, utilize the Troubled Asset Relief Program, TARP, to 
enhance lending through banks or through organizations like 
AOC. TARP is not going to quickly or meaningfully stimulate the 
small business sector, and the economy isn't going recover 
until small businesses begin to expand again.
    TARP isn't stimulating small business lending.Most TARP 
money was given to banks, which in turn didn't provide most of 
the money for small business lending. Many banks used TARP 
funds to repair their balance sheets rather than extend new 
credit. There is a need for TARP funds, to increase liquidity, 
to enable community financial institutions, to build lending 
capacity, to meet increasing loan demand, and fill financing 
gaps resulting from banks' retrenchment.
    Access to treasury rate financing for business is critical 
and could be responsibly implemented through proven delivery 
systems of community financial institutions by earmarking some 
TARP funds for small business loans, either through banks or 
community financial institutions like AOC.
    Section 103 of the TARP legislation states, "In exercising 
the authorities granted in this act, the secretary shall take 
into consideration ensuring that all financial institutions are 
eligible to participate in the program without discrimination 
based on size, geography, form of organization, or the size, 
type, and number of assets eligible for purchase under this 
    Mr. Schrader. You will have to wrap up, Mr. Brandt.
    Mr. Brandt. Recommendation two, utilize the SBA non-bank 
lending licensing capability to enhance the opportunity for 
small businesses to gain access to the SBA loan guarantee 
program. Thank you for your consideration of these 
recommendations. I'd be happy to answer any questions.
    [The statement of Mr. Brandt is included in the appendix.]*
    Mr. Schrader. Very, very good testimony. Sorry I had to cut 
you off there a little bit. But we have your written record, 
and I like the recommendations.
    Well, let's go to Mr. Compton. Mr. Compton is president and 
chairman of Pioneer Trust Bank, in Salem, Oregon, one of the 
state's oldest banks, and the only locally-owned national bank 
in Marion County. Mr. Compton is a native Oregonian, graduated 
from South Salem High School and Oregon State University, 
stayed in his community, which I appreciate.
    He's the third generation of Comptons to have served as 
president of Pioneer Trust, following his grandfather, H. V. 
And his father, Stuart. Mr. Compton also serves on the board of 
directors and is treasurer of the Oregon Law Foundation.
    I welcome you to the committee, Mr. Compton.


    Mr. Compton. Thank you, Congressman Schrader. And I'm also 
here with Mr. Nass from our office, as well, so we're doing 
this together. Hearing the testimony--excuse me, I have a frog 
in my voice, obviously. You know, we've been--Pioneer Trust 
Bank has been around since 1924. We cater to the small 
businesses. That's what we're all about. Listening to the 
testimony previously I think almost made me feel like I need to 
apply to the Federal Witness Protection Program.
    But, you know, quite honestly, we certainly understand and 
respect the words that have been spoken today, because we don't 
necessarily disagree with the information at all. We are a 
small business as well. We employ 62 full-time equivalent 
employees. We're also a traditional bank. By meaning a 
traditional bank, we take deposits from the local businesses 
and the local customers, and then we turn around and lend them 
to the community.
    So from that respect we support the local businesses, and 
we keep these loans. These loans are on our books. As a matter 
of fact, in the last year our loan portfolio is actually up 
seven and a half percent over last year. And we're probably one 
of the few banks that does that. But we do like to keep our 
    We have kept a strong capital base, we've kept liquidity, 
and we do that to meet the needs for the community and for our 
customers. We agree that this is very important for community 
banks to do this. And what's happened over the last year or so, 
and actually it's gone on for quite some time, is the 
leveraging of the financial system.
    There is this tremendous need for Wall Street that banks 
needed to increase profits to take the risks that they felt 
were out there, and we honestly did not agree with that 
philosophy, and we did not follow it. We made sure that we had 
sufficient resources on hand to take care of our community and 
take care of our customers; therefore, we didn't participate.
    In any event, we did not take any TARP money. We will not 
take any TARP money. We stand independent of these plans. As a 
matter of fact, we were talking about this, and my predecessor 
prior to me had done one SBA loan; and he showed me the file 
when I was about Steve's age, and it was about this thick 
(indicated). And he looked at me, and he said, "My advice is, 
if it's good enough to keep in our portfolio, it's good enough 
to stay there." And that's what we've done.
    We've have a few that we've have an opportunity to work 
with Mr. Safstrom at the Mid-Willamette Valley Council of 
Governments. But I also think it's important, and one of the 
reasons why I asked Steve to come here, is--and thank you for 
allowing this to happen--is because when I was his age, I went 
through some pretty severe--
    Mr. Schrader. You are making us sound very old here.
    Mr. Compton. Well, I appreciate that.
    Mr. Schrader. We're not that old, Randy. Come on.
    Mr. Compton. It's that Hair Club for men, stuff like that, 
everything you read. No, but, you know, I've been through a few 
of these cycles. I understand and feel the need. Our 
responsibility as a bank is to, notwithstanding being involved 
with the community and being a member of the community, but to 
provide the credit needs for everybody in this community that 
we can take care of.
    You can't take care of everybody. We're a small business. 
Our total assets are about $265 million. You know, in a bank 
that's been around since 1924, one would think that you would 
have billions and billions; but, you know, we love Salem, we're 
here in Salem, we get outside of Salem and I'm lost, so we make 
sure that we take care of the needs, and that's what we've been 
doing since then.
    But, you know, we encourage people to deposit their funds 
with the community banks, because we turn around and relend it 
within the community. At least that's what we do, because, you 
know, where else are we going to go? We're not in New York. 
We're not in Washington. We're not in California. We're just in 
    So, you know, we work with our customers. And these times, 
which are very traumatic for everybody, and we've heard it all 
today, we want to make sure that we work with our customers. We 
do not leave our customers out in the dark. We want to make 
sure that they are well taken care of. If they have a need and 
they have a situation, we work through it.
    We work with them. We sit down. Steve goes out, visits the 
offices of the people that he deals with, but he needs to hear 
and see this as well. I've heard it. I've seen it. I understand 
it. That's what made our bank the bank it is today. But for the 
future and for future management, we need to have folks like 
Steve hear these types of conversations, these meetings, 
participate, be a part of it, and learn from it, because that 
ultimately will make us a better, stronger bank for the future, 
to be able to meet the further needs and the future needs of 
this community.
    And I'll just have Steve say a few minutes, since I, as he 
will testify, take most of the time anyway.
    [The statement of Mr. Compton is included in the appendix.]
    Mr. Schrader. Well, you did pretty good.
    Let me just introduce Steve a little bit. And I appreciate 
there is a difference between the community banks that have 
always had prudent lending standards versus these big 
investment banks that got in the game, and I think 
unfortunately. So not all banks are created equal, and thank 
goodness for the work you guys have done for generations in the 
community. And we all, I think, recognize that.
    Mr. Steven Nass is also here to testify on behalf of 
Pioneer Trust Bank, where he serves as assistant vice 
president. Mr. Nass is a native Oregonian, graduated from 
Willamette University in 2001 with a degree in economics.He's 
worked for Pioneer for the last eight years, risen from 
commercial loan officer to vice president. That's very 
    He was a four-year starter on Willamette's football team. 
That's pretty impressive. Played my son's Linfield team. He's 
active in numerous men's sports leagues in Salem, and also 
serves as a member of Salem Rotary. In addition he's a wish 
granter for the Make A Wish Foundation. Thank you for that 
very, very much. And please proceed.

                  STATEMENT OF STEPHEN P. NASS

    Mr. Nass. Thank you, Congressman Schrader. I'll keep it 
fairly brief. You know, I've had the pleasure of working for 
Pioneer Trust Bank, as Randy mentioned, a small business 
itself, well capitalized, well managed. I am a small business 
lender. I'm out there making loans, trying to find good loans. 
Although these days I seem to spend more time collecting than 
actually making, which is frustrating.
    But the bank has given me flexibility to modify, extend, do 
whatever we can to get additional access to capital for these 
small businesses that need it. It's a tough time. They just 
need to get through it, work on their plans. And as a bank, 
we've chosen not to use a lot of SBA lending, because we feel 
we lose that flexibility. We feel that we lose that ability to 
really get down in the trenches and help these small 
    And then I think with the restrictions on whether it's 
paperwork or whether it's fees or whether it's just the 
inability to even get your account balanced if you want to 
refinance, you know, as John Safstrom mentioned earlier, those 
are the things that we will feel as a bank we're able to offer 
non-standard loan products.
    And I don't want to confuse anybody. I'm not talking about 
exotic stuff here. I'm talking about simple, straightforward 
loans that meet the customer's unique needs, because I 
guarantee there is 100 customers and they have 100 different 
ways to run their business. They are going to need 100 
different loans, and that's what we're all about down at 
Pioneer Trust Bank.
    [The statement of Mr. Nass is included in the appendix.]
    Mr. Schrader. Very good. Thank you very, very much. And I 
think the one-on-one that your bank and other small community 
banks, you get to know the person. I used to know, way back 
when I started my veterinary business, and even when I started 
the farm I could go in and actually talk to a loan officer face 
to face, and you could size the measure of the man or woman in 
front of you and figure out if they are going to, you know, 
make good. It's an unfortunate change that's occurred over the 
last fifteen, twenty years.
    Well, last, but not least, let's go to Mr. Rasmussen. James 
Rasmussen is CEO and president of Modern Building Systems, a 
modular manufacturing business started by his father in 1971. 
Modular Building Systems provides turn-key building solutions 
for single and multi-story buildings. Mr. Rasmussen also serves 
on the executive leadership council and the board of the Salem 
Chamber of Commerce.
    He's a past board member of Modular Building Institute, 
which is the National Association for Commercial Mobile and 
Modular Companies. Jim is a graduate of Oregon State 
University, been married to his wife Colleen for 22 years, and 
has two daughters, Erin and Kaitland. Thank you for taking time 


    Mr. Rasmussen. Thank you, Congressman Schrader, for 
allowing me to come up and speak for the Subcommittee on 
Finance and Tax. Modern continues to do well in this down 
economy. We are not going to set any records this year, of 
course, and had to let a few people go over the last year. But 
looking over the last five years, our employment base is 
actually up from averages. We are also starting to see ERA 
funds flow to small businesses like my own company, as we are 
the recipient of a contract in the Hanford area, so we 
appreciate that.
    Our business has not had a problem accessing capital so far 
in this market. I hope that stays the same. Matter of fact, 
right during the economic meltdown we were getting a loan in 
Sacramento, which was kind of the epicenter of the national 
meltdown for industrial property, to fuel our continued 
expansion where we lease buildings to various clientele.
    What I see, knowing a number of banks, we do choose to bank 
with a community bank, but what we see is that banks are being 
just more careful. I don't believe that the capital markets are 
closed. Proof of lending for bare land in Sacramento would be 
good proof of that. The capital markets aren't closed. They are 
just more difficult than what they had been. My belief is that 
the underwriters were not probably doing as good a job as they 
    They were looking more at volume than they were at the 
underlying assets and balance sheets of companies. I also 
believe that banking is one of the most heavily regulated 
industries that exist, and it makes one wonder what the federal 
regulators were doing when you have the CEO of a former and 
nonexistent bank, Washington Mutual, on record as saying a thin 
file is a good file.
    And to me that's what creates a bubble real estate economy, 
which kind of was the precursor for our poor overall economy 
that exists today. Now, you know, the federal regulators and 
FDIC banks are all being overly careful, probably, and that's 
what small businesses like myself are starting to feel.
    TART money, I feel that it was a moderate success, and that 
it didn't allow--or it caused the bank system to stabilize. 
And, you know, we were in real fear of our banking system 
falling apart just six months ago, and we can't forget that. 
And I think that the Fed probably did a pretty good job in 
setting that system up to allow banks to take over other banks.
    And you will notice that quite a number of banks have 
already paid back their TART money. Many Americans don't 
realize that TART money wasn't a loan. It was a purchase of 
preferred stock in those banks at a rate of 5 percent interest, 
which I would characterize as a wholesale rate.
    What I saw is that caused the bank's average, you know, 
fund rates that they could charge their money, to go up, 
thereby raising consumer and business loan rates. As far as the 
SBA is concerned, Modern, over 38 years, we've really never 
used any of their programs. We looked at a 7(a) loan in 1992. 
Just too cumbersome. Found another way to do the financing of 
that project.
    We have used the U.S. Export Assistance Center that helps 
small businesses and large businesses alike export to foreign 
countries. We've got buildings in Japan, China, all over the 
place, and I've found the U.S. Export Center to be very 
effective and extremely helpful.
    So that said, they are part of SBA. Most of their other 
programs, though, we really don't use. The SBDCs I think are 
helpful, in that they help small businesses. If you are a 
widget maker and not necessarily a guy that knows how to write 
a business plan so that the Pioneer Trust Bank will provide the 
funding for that idea, they probably do a pretty good job. But 
for the amount of money that goes into that system, I think 
that the chambers of commerce and the Salem Economic 
Development Corporations of the world probably would be more 
efficient in the delivery of those services.
    My feeling about a recipe for improving access to the 
capital markets is to just ease the regulatory environment to 
create an environment where companies feel like they are 
willing to take risks; and not just companies, but inventors 
and business people in general. That's what does create wealth 
in this country, and successful ideas in turn create jobs.
    The other is to lower taxes. When you lower taxes, what 
happens is people will generally work a little bit harder, 
because they feel like the dollar is staying in their back 
pocket. And that's what gives them the incentive to go out and 
take those risks, to go, you know, live their dream, whatever 
their business opportunity is. And at the end of the day you 
don't feel like you are working through May to be able to just 
pay your tax bill.
    And so I guess that said, my recipe for improving the 
economy is lower the tax rate and provide a level playing field 
for companies that are competing globally.
    [The statement of Mr. Rasmussen is included in the 
    Mr. Schrader. Very good. Very good.Thank you. Thank you. We 
probably don't have a lot of--we don't have any time, really, 
to ask any questions. I apologize to the panel for that. But a 
very good panel first to last, and hitting on a variety of 
different themes, some different points of view. It certainly 
seems like we can streamline things in SBA quite a little bit, 
provide, I think, some ongoing consistency in the programs, 
maybe even a few reductions, which would require some 
appropriations, which we can explore when we get back to 
Washington, D.C.
    A lot of other really great, you know, comments here. My 
goal usually in these hearings is to listen to folks that are 
on the ground, not make this a top down, we know what's best 
for you approach, because you guys are in the trenches every 
day, and see if we can incorporate some of your suggestions, 
get you some of the legislation that we'll hopefully be putting 
back out in September or October, hopefully, after we get back 
from my so-called recess.
    At this point I'll ask unanimous consent that members have 
five days to submit a statement and any other supporting 
materials they want for the record. Ms. Wilmes did a great job. 
Thank you very, very much on that.
    Without objection, so ordered, and really appreciate 
everyone's attendance. At this point the meeting is adjourned.
    [Whereupon, at 10:00 a.m., the subcommittee was adjourned.]