[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT IMPROVEMENTS NEEDED: SBA OIG'S REVIEW OF THE MICROLOAN
PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 12, 2017
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-041
Available via the GPO Website: www.fdsys.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
27-252 WASHINGTON : 2018
HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Trent Kelly................................................. 1
Hon. Alma Adams.................................................. 2
Hon. Dave Brat................................................... 2
Hon. Dwight Evans................................................ 3
WITNESSES
Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United
States Small Business Administration, Washington, DC........... 3
Mr. William Manger, Associate Administrator, Office of Capital
Access, United States Small Business Administration,
Washington, DC................................................. 5
APPENDIX
Prepared Statements:
Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United
States Small Business Administration, Washington, DC....... 17
Mr. William Manger, Associate Administrator, Office of
Capital Access, United States Small Business
Administration, Washington, DC............................. 21
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Audit of SBA's Microloan Program............................. 24
The Friends of the SBA Microloan Program..................... 43
OVERSIGHT IMPROVEMENTS NEEDED: SBA OIG'S REVIEW OF THE MICROLOAN
PROGRAM
----------
THURSDAY, OCTOBER 12, 2017
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations, Oversight, and
Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:00 p.m., in
Room 2360, Rayburn House Office Building, Hon. Trent Kelly
[chairman of the Subcommittee] presiding.
Present: Representatives Kelly, Chabot, Brat, Blum, Bacon,
Adams, Evans, and Murphy.
Chairman KELLY. I call this hearing to order. Today we will
be examining the Small Business Administration's Microloan
Program, specifically, the SBA's Office of Inspector General's
recent audit of the program. The Microloan Program was the
created to help women, low-income citizens, veterans, and
minority and entrepreneurs. The program's mission is to provide
microloans, along with training and technical assistance to
help give qualifying small businesses a boost to start up, stay
open, and even to grow. This is how the program is supposed to
work. SBA makes direct loans to intermediaries. These
intermediaries then use the proceeds from the direct loans to
make small short-term loans to eligible small businesses.
Although the intermediaries can lend up to $50,000, the average
microloan is $13,000. These intermediaries are non-profit
community-based organizations with lending and business
management experience. SBA's Office of Capital Access is
responsible for overseeing the Microloan Program, specifically,
the intermediaries that are the face of the program for small
businesses. It is supposed to make sure that the intermediary
allows only qualifying small businesses to participate in this
program; to make sure that the intermediary's loans' files are
accurate and complete; to make sure that the intermediary is
following SBA's lending policies and procedures.
Ultimately, SBA is supposed to make sure that the Microloan
Program, a program there to help the smallest of the small
guys, is actually fulfilling its purpose. According to a recent
audit from the SBA's Office of Inspector General, however, the
agency needs to improve its oversight of the Microloan Program.
Two weeks ago, the Office of the Inspector General released a
new audit of the Microloan program. Its last audit was in 2009.
According to the recent audits, OIG determined that SBA is
unable to measure whether the program is performing well. In
fact, OIG found that SBA did not even implement all the
recommendations from the 2009 audit, even though SBA said it
would. That is not acceptable. SBA must do better.
The Microloan Program is an important program to this
Committee. And for that reason, strong oversight is needed.
This oversight is needed to make sure the program is
functioning as intended, and without fraud, waste, and abuse.
We expect SBA to completely and fully implement the OIG's
recommendations this time around. We appreciate the witnesses
being here today and look forward to hearing their testimony. I
now yield to our ranking member, Ms. Adams.
Ms. ADAMS. Thank you, Mr. Chair, and thank you all for
being here today, and we appreciate the time you have taken. In
recent years, the nature of small business financing has
evolved. No longer do many banks want to take on a business
loan under $250,000, leaving much of the Nation's small
employers empty-handed. SBA's Microloan program fulfills a
critical need in the capital markets by serving entrepreneurs
who are not served by the private sector or SBA 7(a) loan
programs. The Microloan program is a key resource for startup,
newly established and growing small businesses as well. It has
provided millions of dollars in financing and technical
assistance to small business and entrepreneurs since its
inception in 1992 by providing loan programs to non-profit
intermediaries who, in turn, lend funds to the smallest of
small businesses. The program helps borrowers streamline their
operations, grow to profitability, and create new jobs.
This Committee has recognized growth in microlending. And
by recently passing legislation increasing the intermediary
loan limit, we have extended the reach of the program. Doing so
enhances the ability of small firms to access much-needed
capital. And so, as we enhance the program, it is invaluable to
consider the program's performance at both the intermediary and
agency levels. The Office of Inspector General has recently
focused its attention on the SBA's management of the program.
The report found a number of improvements were needed to
measure performance and ensure the program's integrity. And a
number of concerns were raised in regards to the reporting
system and documentation of loans. So we take these issues very
seriously, because it is our duty to guarantee the Microloan
program performs at its best if we intend to see the success of
entrepreneurs in our communities. So today's hearing will
provide us with the opportunity to hear about the OIG's
findings related to oversight and performance of the program.
Overall, this Committee seeks to ensure that the Microloan
program works with small business borrowers, and I look forward
to hearing from our witnesses today and gaining their insights
on how we can improve the program. And thank you, Mr. Chair. I
yield back.
Chairman KELLY. Thank you to our ranking member, Ms. Adams.
And I now yield to the gentleman from Virginia, the chairman of
Subcommittee on Economic Growth, Tax, and Capital Access, Mr.
Brat.
Mr. BRAT. All right. Our chairman did such a good job of
summarizing the issues we are going to cover today, along with
our ranking member, that, in the interest of efficiency, I am
going to yield back and look forward to your testimony.
Chairman KELLY. I now yield to the gentleman from
Pennsylvania, the ranking member on the Subcommittee of
Economic Growth, Tax, and Capital Access, Mr. Evans.
Mr. EVANS. In that spirit that the gentleman just
expressed, and my ranking member did such a great job, I am,
too, going to yield back in efficiency and effectiveness. Thank
you.
Chairman KELLY. Thank you. And as you guys can see, we
work, I think, more bipartisan on this Committee than any of
the other committees I am on. And that is just a wonderful
thing to have such great members. If Committee members have an
opening statement prepared, I ask that they be submitted for
the record. I would like to take a moment to explain the timing
lights to you. And you guys are both veterans. You have 5
minutes to deliver your testimony. The light will start out
green. When you have 1 minute remaining, it will turn yellow.
And finally, at the end of your 5 minutes, it will turn red. I
ask that you try to adhere to the time limit.
I now want to formally introduce our witnesses today. Our
first witness is Mr. Hannibal ``Mike'' Ware. Mr. Ware serves as
the Acting Inspector General for the Small Business
Administration Office of the Inspector General. The OIG is
responsible for the independent oversight of SBA's program and
operations. The OIG conducted the audit that is the subject of
today's hearing. We look forward to hearing Mr. Ware's
testimony.
And our second witness will be Mr. William Manger Mr.
Manger is the Associate Administrator for the Office of Capital
Access at the Small Business Administration. One of the
programs Mr. Manger's office administers and oversees is the
Microloan Program. Thank you for joining us today. And with
that being said, Mr. Ware, you are recognized for 5 minutes.
STATEMENTS OF HANNIBAL ``MIKE'' WARE, ACTING INSPECTOR GENERAL,
UNITED STATES SMALL BUSINESS ADMINISTRATION; AND WILLIAM
MANGER, ASSOCIATE ADMINISTRATOR, OFFICE OF CAPITAL ACCESS,
UNITED STATES SMALL BUSINESS ADMINISTRATION
STATEMENT OF HANNIBAL ``MIKE'' WARE
Mr. WARE. Thank you very much, Chairman Kelly and Brat,
Ranking Members Adams and Evans, and distinguished members of
the Subcommittee. Thank you for the opportunity to be here
today and for your continued support of the Office of Inspector
General. We recently published the results of our audit of
SBA's management of the Microloan program. And I am happy to
discuss our findings with you today. The Microloan program
assists women, low-income veteran, and minority entrepreneurs
as well as other small businesses in need of financial
assistance. Under the program, SBA makes direct loans to
intermediaries that, in turn, use the proceeds to make small
short-term loans, microloans, up to $50,000, to eligible small
businesses. SBA also awards grants to intermediaries to provide
training and technical assistance to microloan borrowers. From
fiscal years 2014 to 2016, intermediaries closed 12,168
microloans, totaling approximately $170 million.
As background, we initiated this review in response to a
request from the Senate Committees on Small Business and
Entrepreneurship to audit the program. And for historical
context, our office conducted prior reviews of the Microloan
program in 2003, and again in 2009. The objectives of our
current review were to determine whether SBA effectively
implemented actions to improve oversight of the Microloan
program and the extent that SBA oversight is sufficient to
measure program performance and ensure program integrity. We
found SBA management did not effectively implement all prior
audit recommendations to improve oversight. Furthermore, SBA
management did not conduct adequate program oversight to
measure program performance and ensure program integrity.
These internal control weaknesses were due to SBA not
having an overall site visit plan, an adequate information
system, available funding for system improvements, or clear
standard operating procedures. Additionally, SBA management
focused on output-based performance measures instead of outcome
measures. In our review of the statistical sample of 52
microloan files, we found that data contained in SBA's
information system for 27 of the loans did not match the
information included in the intermediaries' loan files.
In addition, we found that intermediaries did not have
sufficient documentation to support that it originated and
closed 85 percent of the loans in accordance with SBA's
requirements. As a result, SBA's ability to validate microloan
data, conduct analyses across multiple programs and systems,
and capture outcome-based measures was impaired. We found there
was no way to ensure program integrity or measure program
success. These internal controls over the Microloan program are
critical as Congress considers expanding the program.
On a positive note, we also found SBA did take some steps
to improve its oversight of the Microloan program. Those steps
include the following: They developed a justification to
request funds for technology improvements; they conducted a
time study to evaluate staff time spent on tasks in support of
technology improvements; and they developed a module within the
program information system for new loan requests analysis which
replaced the use of spreadsheets.
To keep this progress moving forward, we offered four
recommendations to SBA to improve SBA's oversight of the
Microloan program. We recommend that they continue efforts to
improve their information system; develop a site visit plan to
further monitor Microloan portfolio performance; update their
SOPs to clarify requirements regarding evidence for use of
proceeds and credit elsewhere; and update the Microloan
reporting system manual to reflect current technology
capabilities.
SBA management agreed with the four recommendations, and
our office will monitor these recommendations until we assess
corrective action has been implemented. I am proud of the work
performed by our auditors to provide to Congress timely insight
into the Microloan program. Thank you once again for the
opportunity to speak to you today, and I look forward to your
questions.
Chairman KELLY. Thank you, Inspector General Ware. And, Mr.
Manger, you are now recognized for 5 minutes.
STATEMENT OF WILLIAM MANGER
Mr. MANGER. Thank you, Chairman Kelly and Brat, and Ranking
Member Adams and Evans, for the opportunity to testify before
you today. I appreciate that this Committee has various
champions of the Microloan program, and I know that today's
hearing will focus us on how to make the program function and
operate better. To do that, we need to take a hard look at the
past and present IG recommendations. And in my capacity as the
head of SBA's Office of Capital Access, I recognize that I need
to drive those changes home. I view the IG report as a road map
on how to strengthen and improve a program that many of you
care so strongly about. We have a shared goal in wanting to
spur economic investment and business opportunity in
communities throughout this country. The IG report, through
pointing out areas where SBA needs to do better, will enable us
to further enhance our lending. To illustrate the reach of our
Microloan program, I wanted to share some data. In fiscal year
2017, the intermediaries in SBA's Microloan program lent $64
million to over 4,700 businesses that were unable to get credit
elsewhere. The average loan amount was close to $14,000. The
number of jobs created or retained was close to 18,000.
Those figures tell us we are on track, but further analysis
also tells us we are being successful in reaching communities.
In fiscal year 2017, microloans were only 4 percent of the
SBA's total loan portfolio, but a full 40 percent of those
loans went to startups, and 30 percent of microloans go to
businesses in rural areas. This represents greater penetration
than our other SBA loan programs.
Finally, all small business owners that receive a Microloan
from SBA receive technical assistance, which is critical for
business survival. In fact, businesses that receive technical
assistance are three times more likely to stay in business past
year one than those that do not receive technical assistance.
Mr. Chairman, this data shows us that we are on the right
path. It affirms the members' interest apparent on this
Committee and also the geographic reach to lending communities.
So the question is--how do we do better? The IG report
makes specific recommendations that we agree with. First, our
data system is 25 years old, and desperately needs to be
upgraded. When I came into my position in March, this was one
of the first things I identified. We have now funded a review
of the system which will lead to a specific recommendation for
an upgrade in conjunction with Maria Roat, our Chief
Information Officer at SBA. I want us to get a new system in
place as soon as possible.
Second, our SOP is currently being updated to provide
better direction and guidance to both SBA staff and our
intermediaries. We are in the process of creating a more
thorough, on-site review plan of intermediaries, and we will
continue training our SBA staff in the field and in
headquarters to provide them better direction on their
engagement with our intermediaries. Compliance is of utmost
importance to maintain the integrity of the Microloan program.
This program does so much.
Let me share one entrepreneur's success story with you.
John Palmer of Gardena, California, is an African-American
disabled veteran who wanted to start a security business when
he left the Army. He started Servexo, but after 3 years, needed
capital to take a bold leap into a municipal contract. Because
of extended credit, John could not secure traditional financing
to grow his business. He went to a Small Business Development
Center and was referred to a microlender, CDC Small Business
Finance in California. They provided John with a $40,000
microloan that allowed him to staff a new contract and purchase
new employee uniforms. John also received technical assistance
related to financial literacy. This led him to bill weekly
instead of biweekly, which greatly improved his cash flow.
This is one success story, but there many, many others.
Lastly, I want to speak to a portion of the IG report that
observes the necessity for better program integrity in view of
legislation to bolster the Microloan program.
We were pleased to work with the Committee on the Microloan
bill that passed out of Committee and brought forward to the
full House in July. We appreciate the continued interest and
support of the program. And you have my commitment that we will
make the changes necessary to achieve continued success. Thank
you, Mr. Chairman. I look forward to your questions.
Chairman KELLY. And I thank both of you witnesses for being
here. I thank the ranking member for being here as part of this
to have this important hearing. It matters to me that 30
percent of the people who are financed are from rural areas.
That is the type of area that I represent. It matters to me
that these loans go to the people who need them most, which are
our veterans and minorities in areas, whether it is for startup
or whether it is for continuing and growing that business, that
is very, very important.
Mr. Manger, you have got a road map. I mean, the Office of
Inspector General told you exactly what you need to do to do
this thing right. And so, my hope is that the SBA will follow
to the T those recommendations, or either dispute with this
Committee, or the Office of Inspector General, what they don't
agree with there. But otherwise, I think you have a road map to
get this program right so that we make sure the right people
are getting that. In your recent audit, Mr. Ware, your office
found that the SBA did not implement all the recommendations
from the 2009 audit. Specifically, which recommendations did
they not implement?
Mr. WARE. It is important to note that they definitely made
attempts to implement the recommendation. We are saying they
didn't effectively implement three of them. And the first one
was recommendation 3 that dealt with actually going out and
validating and verifying the data that is being reported by the
intermediaries.
So one of the ways that we asked them to do that was to
bolster up their site visits, to get out there and back-check
these things to see if the information is actually accurate.
And when we looked, we found that more than half of the files
that our auditors reviewed showed that the information had
disparities. It just wasn't accurate. So we dug into the site
visits and found that they didn't necessarily have a site visit
plan in place that would ensure that all the intermediaries
were covered, number one, or that it was in any kind of
scheduled manner to ensure that there is continuity. So we
asked them to shore that up.
So that was the first one. And then recommendations 5 and 6
both had to do with performance measures. So we know, and Mr.
Manger and I spoke about the way that SBA does a lot of their
performance measure, and it is more output-based than outcome-
based. And we are asking to have a greater lens into outcome-
based performance measures. So that could be done through their
IT system as well.
Like Mr. Manger said, it is very old. It is missing fields.
There are just certain things that could be placed in there,
because some of the data, quite honestly, is readily available.
It is right there. It is just not being rolled up in any way
that they could have a programwide view of the program to make
program-wide-type decisions.
Chairman KELLY. And thank you. And just as an old soldier
and old commander, I know that, number one, we don't do well,
those things that aren't measured. And so you have to have
performance measures or something to measure against. And we
also don't do well those things that aren't inspected. And
inspected doesn't mean online. The things we follow up on and
show the importance by visiting are the things that people do
well. If you don't show up, they assume that you really didn't
mean that they were important. Was your office surprised to
learn, Mr. Ware, that they have not implemented the things that
you had asked?
Mr. WARE. I got to tell you, we were a little surprised
that technical capabilities were not in place, mainly because
we thought they were, quite honestly. After the 2009 one, we
were provided with screenshots and with everything. And they
had a contract in place to make these improvements. We actually
thought they were done, but the contract, we found out later,
fell apart, and that project went way.
Chairman KELLY. Mr. Manger, now, how will SBA make sure
that it actually implements these recommendations under your
leadership?
Mr. MANGER. Well, I am here to, again, drive this home. And
I will ensure that the office and the staff in my office, we
will pay very, very close attention to the IG report, the road
map, as you said, sir. And we are going to implement it. We
have already taken steps actually to implement some of the
recommendations in the report by the IG. As we mentioned, we
are actually funding now an evaluation with our Office of the
Chief Information Officer, Maria Roat, to identify what is the
best system to capture all of the information that we need to
capture. And as Mr. Ware said, we want to capture, again, not
just outputs, but outcomes. And we are going to do a whole new
system to replace the 25-year old system, and we are going to
try and do that, as I said, as soon as possible. We also have
taken steps to change the language in the SOP. My office has
already started to work on that. Again, with Mr. Ware and the
inspector general's recommendations, we are changing the
language in the SOP to make it clear and readily identifiable
by the lending intermediaries, our staff, field staff, so
everyone knows what is necessary to be in compliance.
Chairman KELLY. Okay. And I am going to go just a little
over, but I will tell you, it goes back to we measure--we do
well what people measure. You need to have timelines, if you
don't, of when these things are going to be completed. If you
do not have timelines and it is just when we get to it, people
will not complete it. And with that, I have overextended my
time, and I yield to the ranking member, Ms. Adams.
Ms. ADAMS. Thank you, Mr. Chair, and thank you, gentlemen,
for your testimony.
Mr. Ware, in fiscal year 2016, the Microloan program was
responsible for the creation of nearly 18,000 jobs. 47 percent
of microloans went to minority entrepreneurs, and 45 percent of
borrowers were women entrepreneurs. To what extent should
factors such as job creation and borrower type be included as
measures of the program's success?
Mr. WARE. That is a good question, actually. Actually, our
office believes that that is at the crux of what should be
measured, because if we want to know for certain that the
program is meeting its intended purpose, those are exactly the
type of performance measures that are more outcome-based that
we have been discussing with the Small Business Administration.
Ms. ADAMS. Right. I understand that intermediaries may
utilize the Microloan program and the Community Advantage
program simultaneously for one small business borrower. So with
your recommendation on data collection in mind, can you
elaborate on how SBA can ensure that its programs, particularly
when being combined, can each meet their intended purposes?
Mr. WARE. That was one of the things we found in the report
that might--was not being tracked in a way that could roll out
programwide to determine what is the impact of having the
programs combined, what is really going on, because those
programs we found during the audit that sometimes they
combined, and it causes more--higher fee to the borrower and
things like that.
So the intermediaries were saying that we are doing this to
make it easier for the lender, which might be the case if you
look at it from their standpoint. But we also think that, Hey,
this is also adding a different cost to the borrower. But we
still believe that SBA needs to be better--have better
oversight over that, especially when you are combining the
programs.
Ms. ADAMS. Okay. Thank you. Mr. Manger, SBA has promoted
creating a continuum of access to capital. The OIG report noted
that some intermediaries were not reporting whether small
businesses were still in operation. What measures are in place
to track the development of small businesses in the Microloan
program such that they could avail themselves, if eligible, to
additional SBA loans?
Mr. MANGER. Thank you very much. We are putting in place
identifiable markers so that we can track someone who receives
a small business loan through a microlender. In fact, we have
done some analysis already since I came aboard in March, and we
are able to tell you that over 8 percent of those that received
a microloan through the SBA have come back and received a
larger loan through one of our other loan programs. So we do
have hard evidence that shows the continuum, and we would like,
again, to have people eventually not even need the SBA, we
would like them to be able to get loans conventionally. That is
our ultimate goal. And we are working towards that goal.
But we need to--and you are correct and the inspector
general is correct--we need to have identifiable markers to be
able to track businesses into the future. With the 504 program,
as you may know, we do track at least 2 years of the continued
job creation by that business. We need to do that and even more
with the microlender program so that it is the strongest
program that we can have.
Ms. ADAMS. Yeah. Thank you. So to what extent do you
attribute the discrepancies that the OIG found between the data
in SBA's information system and the data in the intermediary
loan files?
Mr. MANGER. So a lot of that can be explained, and we did
talk to the IG about this. A lot of that can be explained by
the fact that much of the information that is initially
recorded is done in the application. What really should be
looked at is the credit memo that follows the application, the
credit memo and then the information that is in the system is
actually consistent. Sometimes someone puts in an application
that they are going to create four jobs. And then when they
talk further and they get more technical assistance, they say,
actually, it is going to end up being three jobs. And then when
we do the final loan disbursement or the lending intermediary
does that, it shows that there were three jobs created. So it
is consistent with the credit memo. It is not always consistent
with the application. And we did point this out to the OIG.
Ms. ADAMS. So consistency and coordination, then?
Mr. MANGER. Correct.
Ms. ADAMS. Very good. Thank you, sir. Yield back, Mr.
Chair.
Chairman KELLY. Thank you, Ms. Adams. And I now yield to
Mr. Brat.
Mr. BRAT. Thank you all for being with us today. I just
have a question in terms of the Office of Inspector General. I
think you have done us a good service in, first of all,
checking into programs, making their--serving our interests,
and et cetera. But most of what I saw and the types of metrics
you put in place just kind of assure at the managerial type of
level that the program will be implemented in a good way.
And beyond that--I mean, what we are really concerned about
is that small business loans are being administered to people
and they are having some effect as well. And so, if you could
both just say a word on that, right? I mean, you have given us
some good examples. I am not critical. I want these loans; I
want economic growth. I taught economics for 20 years, so it is
all good, right? I love it. But the anecdotal stuff doesn't cut
it for me. And even if you got a metric. You said, I think, you
know, we got, you said, tech assistance. And the firms that
take that have three times the survival. That could just be
casual correlation, right? It could be that the bigger firms
that survive have access to, you know, midlevel managers or as
one manager, that can take advantage of assistance where the
small guy can't.
I mean, we want to see kind of real evidence, right? Not
just, Hey, we think, you know, three times this, and they are
better over here. You know, is that a fluke? I mean, if you run
a regression and you control for some things, right? Like, my
daughter is in high school doing this stuff with a control
group, right? I mean, do we have some assurance that these
programs are bearing fruit in terms of economic growth and
helping business? And I would like to see that in the report as
well. Just yield to hear your response.
Mr. MANGER. So as I mentioned, the microloans that were
made last year, we have on record that they created 18,000
jobs. If you look at our statistics based on different groups,
we outperform every group with this program as opposed to our
other SBA lending programs. For example, the percentages of
loans in this program that went to African-Americans this past
year was almost 33 percent. That is a third. That is a much
higher number than with our other SBA lending programs. The
numbers for the last 5 years, the loans to Hispanics was over
21 percent, and to women it was almost half.
We are reaching people that we do not reach with our other
programs. The lending intermediaries are on the ground in
communities--in rural communities, making those loans, a lot of
the times with a high-touch character rationale. And they are
making loans to people who would not--I mean, case after case,
they have said we cannot get the money. They have gone back
repeatedly to banks and cannot get loans.
This program provides them that access to capital. They do
not have to max out credit cards. They are not going to an
online lender that is going to charge huge interest rates to
them. Our interest rates are reasonable. This program is
successful. And we just want to strengthen it and make sure
that it is doing the right thing for the American people.
Mr. WARE. What you are saying is part of what we are
driving at. And SBA, I think in 2011, after that 2009 report,
they got with the consultant. And I am drawing a blank. I was
sitting here trying my best to come up with that consultant
that I knew right up until I sat in this seat a second ago. And
that consultant had some of the same concerns and put forth
some recommendations that were very much in line with what we
had done.
But one of the things they put out there is they were
talking about getting to a performance metric that deals with
overall impact, absent some of the things that you mentioned
like, well, did those that were successful have access to the
other programs. It was Aspen Institute. Thank you. I am here,
like, the Archer Institute? Okay. The Aspen Institute. And one
of the things they recommended, and I believe that at the time,
SBA thought it was expensive, was that you actually speak to
the people who are benefiting from the program to find out if
it is actually working. Why were you successful? And that way
you could dig in much deeper into determining, wait, is this--
are you isolated in this instance because you had a little bit
more charisma, or was it because of this and that? So I still
think that that Aspen Institute study had a lot of merit. I am
not sure if you saw it. But it has a lot of merit, and that was
one of their recommendations.
Mr. BRAT. Thank you.
Chairman KELLY. I would like to thank and recognize the
chairman of the full Committee, Chairman Chabot from Ohio,
for--he is in now. And with that being said, I recognize Mr.
Evans for 5 minutes.
Mr. EVANS. Thank you, Mr. Chairman.
Mr. Manger, I want to go back to something you said when
you talked about the shared goals. And I want to go back to the
part about what is application on jobs and actually what
happens. I think I heard you say sometime when people apply on
paper, they may have a number of 6, but when it actually comes
up to 3. You sort of said that, right?
Mr. MANGER. Yes. There are many times when the application
does not have the same information that is then contained in
the credit memo which is used, actually, just before the loan
is funded.
Mr. EVANS. Correct. And what I guess I am trying to
understand, the actual number you have is 18,000 jobs that you
said have been created from this particular program, is what
you have said.
Mr. MANGER. That is correct, in fiscal year 2017.
Mr. EVANS. Right. So in other words, what I see, one is
sort of like the projected and actual. That is what I am
hearing you say?
Mr. MANGER. Yeah. That number is the number that was
captured by the intermediaries that was put into our system.
Mr. EVANS. So it is the actual----
Mr. MANGER. That is the actual.
Mr. EVANS.--versus what was projected?
Mr. MANGER. Yes. I mean, what was in the application is not
captured here. This is actual----
Mr. EVANS. But it could have been higher?
Mr. MANGER. It could have been, that is correct.
Mr. EVANS. It could have been higher. Right. So what I want
you to do is could you walk us through the process of applying
for a microloan? I want to just understand how that process
works.
Mr. MANGER. Sure. Well, in the instance that I gave you, a
small business entrepreneur was referred to a microlender.
Microlenders are--we have 150 that are using our program today,
approximately. They go into the microlender. The microlender
sits down with them. And then, as you know, Congressman, a very
important component of receiving one of these loans is the
technical assistance. They must, as of today, get 25 percent of
the technical assistance up front before they receive the loan.
And it is many times when they are sitting down with the
lending intermediary who is going to make the loan to them,
that they understand what is necessary to have a sound business
plan, and what it is going to take for them to be able to fund
that loan, and then operate once they receive that loan.
So a lot of the information, again, you know, on the
initial application then is different. But then the lending
intermediary sits down with the potential borrower, puts
together a credit memo. They then--the intermediary funds the
loan with the money that is loaned to them through the SBA. The
lending intermediary makes that loan. And they have, on
average, 3 years to repay that loan. But the SBA allows them,
in fact, to repay that loan up to 6 years.
Then once that business is funded, as current statute
requires, 75 percent of the technical assistance must be
applied again after they receive the loan to make sure that the
business is going to get up and running and growing as it is
supposed to.
Mr. EVANS. I need to do this so I can get through real
quick. The question I am leading into is does the Office of
Capital Access ever get funding and staffing? Because if you
have done 18,000, I am just kind of curious, is there a need to
be more staffing, rearrange a budget and--that could be many
more job opportunities, businesses grow?
Mr. MANGER. No. Honestly, I think our office is really
adequately staffed for the amount of lending that we are doing.
Again, we are making a loan to the 150 microlenders that are
out there. It is the microlenders, who then, in turn, make the
loans to the small business entrepreneurs. So we are not
directly involved at the loan level to the small business
owner. We are there working with the 150 microlenders that are
in our program today.
Mr. EVANS. One other thing I want to jump into. You said a
shared goal that one day there wouldn't be a need for SBA, a
Microloan program.
Mr. MANGER. I am saying that we would like to see small
business owners grow a business so strong and become so
economically viable that they do not need to come back and use
the SBA; that they are able to access capital directly through
the conventional marketplace. That is correct.
Mr. EVANS. What is your sense on the percentage of
companies that you are dealing with that are in that position
that, in a sense, kind of grow out of needing the Microloan
program?
Mr. MANGER. You know, I don't think I have an exact number
for that. I could certainly get back to you on that. But we are
addressing a need that is clearly evident out there for these
small loans that are very impactful. And the lending
intermediaries play a major role, again, in making sure that
these businesses get the technical assistance they need and
then the capital they need to start a strong business and we
are hoping that all the businesses then become strong enough,
again, that they graduate from the SBA.
Mr. EVANS. I yield back. Thank you, Mr. Chairman.
Chairman KELLY. The gentleman yields back. I now recognize
Mr. Bacon for 5 minutes.
Mr. BACON. Thank you, Mr. Chairman. And thank you gentlemen
for coming back. Mr. Ware, if you could talk a little about
site visits. I just want to make sure I understand what they
are. If I interpret it right, it is the higher headquarters go
out to visit smaller units?
Mr. WARE. No.
Mr. BACON. What are they?
Mr. WARE. So the district offices actually go out to do the
site visits where they are, to the intermediaries in those
States.
Mr. BACON. So what is the intermediary, then?
Mr. WARE. An intermediary is who the SBA gives--well, they
apply--they are their non-profits that apply to SBA to get the
money necessary to make the loans to the----
Mr. BACON. So they actually do the loaning--the loans out?
Got it.
Mr. WARE. Yes.
Mr. BACON. Okay. So it is farther down the food chain than
what I was thinking.
So why is it important that SBA have a site visit plan and
assemble the data from its visits? And is that directed from
the top and tells the middle offices how to do it?
Mr. WARE. Yes. Well, let me explain: So absent the plan,
what happens, you have the district offices going out there,
and they are doing site visits. But there is no overarching
plan that says this is how we are supposed to do it. And then
the information doesn't roll up to the top to be able to have a
programwide view as to what is being found in the site visits.
So let's say you find--if Wisconsin, I guess, is finding
that one thing is happening that is regular, that is wrong all
the time that they are doing, whether it is credit elsewhere,
how to review it, or anything else, and it is being done that
way also in Nevada, and it is being done in these other places.
Right now the information is piecemeal from the site visits,
and part of us being able to see that we have a problem in the
program, that we probably need to put something in the system
to address.
Mr. BACON. So it is important that the folks at the top
standardize the reporting processes, how you do it, and format
it in a certain way so the data can be shared better?
Mr. WARE. Right. Well, I think that, for the most part,
that is being done. We are just asking them to make sure that
they can have a programwide lens by having these folks roll up
this information, and everybody be playing from the same
playbook.
Mr. BACON. Right. So it makes sense to me, because we did
the same thing in the Air Force. We inspect, but we determine
at the top how those inspections should look or those visits.
So it is standardized. And you can take those lessons learned.
My question to Mr. Manger, if I may, part of this audit, did
your office have regular communications with the
intermediaries? It sounds like you did, it just wasn't
standardized.
Mr. MANGER. Yes, that is correct. And, actually, this gets
to another point that is very important to note. You know,
actually, several years ago, I was the Associate Administrator
for Field Operations. Field Operations plays a big role in
carrying out the site visits, because it is actually the staff
in the district offices, as the inspector general just said,
that actually carries out the site visits. So we have to be
completely coordinated with the district offices.
When I came back aboard the SBA in March of this year, I
spoke to the Administrator and said we need to do some training
with the field staff, specifically the lender relations
specialist, to make sure they are doing what we need in
headquarters for them to do in carrying out some of these site
visits.
In fact, in September, we had an on-site meeting with all
the lender relations specialists from across the country for 2
days out near Dulles Airport, and we went over this with them.
They now are on board and we are mandating annual site visits
of every microlender in the program; they will be doing that.
The staff in the headquarters office will also be following up
with that. I think once we have that in place, we do have a
checklist already; we can refine it a little bit further. But I
think within, you know, this fiscal year, we are going to have
a very good system in place to ensure that the site visits and
the reporting is done effectively.
Mr. BACON. Okay. Thank you. One last question for you, Mr.
Manger. So you had the inspection results, 2017, from the
inspector general. And you already said this, but I just want
to verify, make sure I got it right. You found their findings
on target, not overly cumbersome? Should be applied?
Mr. MANGER. We agreed with their findings. I mean,
honestly, the biggest problem is the 25-year-old system that we
are working off of. That needs to be updated, without question.
I identified that when I first came on board before I even knew
the inspector general was looking at it. As I said, we have
already funded a study with our Chief Information Officer to
get the right system in place. We are hoping to do that as soon
as possible, and we are working to that goal. I found out there
were issues with the SOP and I immediately started working with
our legal team to update the SOP. In terms of the site plan we
have already done some training with the field staff. We are
going to work on that. So we have adopted, really, the IG's
recommendations. We agree with them, and we are moving forward
to make sure the integrity of the program is intact.
Mr. BACON. Thank you very much to both of you. I yield
back.
Chairman KELLY. The gentleman yields back. I now yield 3
minutes to Ms. Murphy.
Mrs. MURPHY. Thank you, Mr. Chairman, for holding today's
hearing. I am very pleased to have worked with this Committee
to pass H.R. 2056, the Microloan Modernization Act, in the
House. It is an important bill that I think will help ensure
the program keeps up with the increased demand for
microlending. I also want to note that the bill recognizes the
need for increased oversight by requiring GAO to conduct a
thorough evaluation of the program.
As we look to the potential Senate passage of the bill,
this hearing comes at a particularly fortuitous time. My first
question is for Mr. Manger. As you know, under current law, an
intermediary can use no more than 25 percent of its Microloan
technical assistance grant to provide preloan assistance, that
is, assistance to perspective microloan borrower as opposed to
an approved microloan borrower.
Microloan intermediaries have long regarded the 25 percent
cap as an arbitrary requirement that limits their ability to
design support services that address the specific needs of
borrowers and get more perspective borrowers loan-ready. Given
these concerns, H.R. 2056, as amended, would increase the cap
to 50 percent. Could you provide your thoughts on the current
25/75 rule and the proposed change to 50/50?
Mr. MANGER. Sure. We are in completely in favor of that
change. And we want to also thank Congressman Bacon for his
amendment.
We think that it makes much more sense to lift some of
those restrictions; the 25 percent restriction on the
intermediaries for the up-front training. We also realize, and
there is evidence to prove this, that loans are made and
businesses are more successful when the up-front training is
greater. And so we are in complete favor of increasing the up-
front training prior to receipt of the loan; shifting to the
50/50 split, we think that is the right way to go. We
appreciate the House for putting that forward and look forward
working with the Senate to get that passed into law.
Mrs. MURPHY. Great. Thank you. And one quick question.
According to the agency's fiscal year 2018 congressional budget
justification, microlending has seen an increased demand, and
the number of small businesses assisted by the program was up
by 23 percent in fiscal year 2016. Is the SBA prepared to meet
the increased demand going forward? And what additional
resources may be needed?
Mr. MANGER. I think we are perfectly poised to address the
need and the demand in 2018. In fact, if we get this system in
place, we will be able to create greater efficiencies in our
office, and I think we will be perfectly well-suited to address
the increased demand.
Mrs. MURPHY. Great. Thank you. And I yield back.
Chairman KELLY. The gentlewoman yields back. I now
recognize Mr. Blum for 3 minutes.
Mr. BLUM. Thank you, Chairman Kelly, and thank you to the
panelists for being here today I would also like to recognize
the ranking member, Ms. Adams, who is standing up there, on her
hat today. Very nice. Very nice. We are not here to question
the effectiveness of the need for the Microloan programs. We
are here to question the management by the SBA of these
programs. Mr. Manger, how long have you been in your position?
Mr. MANGER. Since March of this year.
Mr. BLUM. Okay. I am reading here that the OIG did an
audit. 52 microloans. They did an audit, a statistical sample.
I was on a bank audit committee, so I know enough about this to
be dangerous. Twenty-seven loans are not matched the
information included in the intermediary's loan files. Thirty-
two loan files did not have adequate evidence that the proceeds
were used for the stated purpose, 32 of them. Twenty loans did
not have adequate support that the borrower could not get
credit elsewhere that is required. Thirteen loan files show
that the intermediary charged interest rates above SBA
requirements. And seven loan files show the intermediary
charged fees above SBA requirements.
Now, I know if the bank that I was on the board of got this
type of audit information, we would be in serious trouble by
the Federal Reserve. My question is, what happened to these
intermediaries? What happens to these people when they do not
follow our rules as stated by the OIG? Mr. Manger.
Mr. MANGER. You raise a very good point, Congressman. Since
I have come aboard, we have taken action. In the last 2 1/2
years, even longer than I have been there, we have the Ofice of
Economic Opportunity, which oversees the Microloan program
within my office working now very closely with my Office of
Credit Risk Management.
Mr. BLUM. What happens to these intermediaries? Are they
terminated?
Mr. MANGER. I will tell you, Congressman, we did actually
just terminate a microlender----
Mr. BLUM. One?
Mr. MANGER.--in the last 2 months.
Mr. BLUM. Clearly, there is--over 50 percent of the 52
analyzed had issues. 50 percent. One has been terminated?
Mr. MANGER. Yes. But if you also look at the number of
loans that were checked, that was less than 1 percent of the
loans made by the Microloan program.
Mr. BLUM. It is a statistical sample, though. You can't
tell me with any reasonable accuracy that 50 percent of them
are not in error, of the total loan portfolio. So this is a
statistical sample. 50 percent or more were in error. These
intermediaries should be terminated.
Mr. MANGER. And as I said, we just terminated one, and I am
working to look at doing that with another one. So I am taking
action, sir, since I arrived in March.
Mr. BLUM. And I have every confidence now in the SBA with
Linda McMahon at the top of it. And you are new to your job, so
I will give you the benefit of the doubt. But they need to be
held accountable.
Mr. MANGER. Absolutely.
Mr. BLUM. I yield back my time.
Chairman KELLY. The gentleman yields back.
As this hearing comes to a close, I want to, again, thank
both of our witnesses for their testimony today. The Microloan
Program is important to this Committee and important to small
businesses. For those reasons, we encourage the SBA to take
heed of the OIG's audit report and improve its oversight. Doing
so will ensure the program fulfills its purpose. Going forward,
we are eager to learn how SBA is implementing the OIG's
recommendations. The Committee expects to be updated on the
progress SBA is making on the OIG's recommendations. Thank you.
I ask unanimous consent that members have 5 legislative days to
submit statements and supporting materials for the record.
Without objection, so ordered. We are adjourned.
[Whereupon, at 2:49 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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INTRODUCTION
Chairman Kelly and Brat, Ranking Members Adams and Evans,
and distinguished members of the Subcommittees, thank you for
the opportunity to be here today and for your continued support
of the Office of Inspector General (OIG). We recently published
the results of our audit of the Small Business Administration's
(SBA's) management of the Microloan Program. I am happy to
discuss our findings with you today.
OIG'S ROLE
OIG was established within SBA by statute to promote
economy, efficiency, and effectiveness and to deter and detect
waste, fraud, abuse, and mismanagement in the Agency's programs
and operations. During fiscal year (FY) 2016, OIG achieved
nearly $145 million in monetary recoveries and savings--an
almost sevenfold return on investment relative to our FY 2016
operating budget--and made 81 recommendations for improving
SBA's operations and reducing fraud and unnecessary losses in
the Agency's programs. Already in FY 2017, through March 31,
2017, OIG achieved monetary recoveries and savings of over $22
million.
OIG audits are conducted in accordance with Federal audit
standards established by the Comptroller General, and other
reviews generally are conducted in accordance with standards
established by the Council of the Inspectors General on
Integrity and Efficiency. In addition, we coordinate with the
Government Accountability Office to avoid duplicating Federal
audits. We also establish criteria to ensure that the non-
Federal auditors that OIG uses (typically, certified public
accountant firms) comply with Federal audit standards.
OIG'S FINDINGS PERTAINING TO THE MICROLOAN PROGRAM
OIG report 17-19, titled Audit of SBA's Microloan Program,
presents the results of our audit of SBA's Microloan Program.
The Microloan Program assists women, low-income, veteran, and
minority entrepreneurs, as well as other small businesses in
need of financial assistance. Under the program, SBA makes
direct loans to intermediaries that, in turn, use the proceeds
to make small short-term loans (microloans) up to $50,000 to
eligible small businesses. SBA also awards grants to
intermediaries to provide training and technical assistance to
microloan borrowers. From FYs 2014 to 2016, intermediaries
closed 12,168 microloans totaling approximately $170 million.
Our objectives were to determine (1) whether SBA
effectively implemented actions to improve oversight of the
Microloan Program and (2) the extent that SBA oversight is
sufficient to measure program performance and ensure program
integrity.
What OIG Found
OIG last conducted an audit of SBA's Microloan Program in
2009 and made several recommendations to SBA to improve its
program oversight.\1\ However, SBA management did not
effectively implement all prior audit recommendations to
improve oversight. Furthermore, SBA management did not conduct
adequate program oversight to measure program performance and
ensure program integrity. These internal control weaknesses
were due to SBA not having an overall site visit plan, an
adequate information system, available funding for system
improvements, or clear Standard Operating Procedures (SOPs).
Additionally, SBA management focused on output-based
performance measures instead of outcome measures.
---------------------------------------------------------------------------
\1\ ROM 10-10, SBA's Administration of the Microloan Program under
the Recovery Act
In our review of a statistical sample of 52 microloan
files, we found that data contained in SBA's information system
for 27 of the loans did not match the information included in
the intermediaries' loan files. In addition, we found that
intermediaries did not have sufficient documentation to support
that it originated and closed 44 of the 52 microloans, or 85
percent, totaling approximately $910,000, in accordance with
SBA's requirements. These deficiencies affect the reliability
of the data reported to SBA by the intermediaries. When
projecting these findings to the microloan population, we
estimated that intermediaries did not have adequate
documentation for at least 9,196 microloans approved from FY
---------------------------------------------------------------------------
2014 to FY 2016 for approximately $137 million.
As a result, SBA's ability to validate microloan data,
conduct analyses across multiple programs and systems, and
capture outcome-based measures was impaired, and there was no
way to ensure program integrity or measure program success.
These internal controls over the Microloan Program are critical
as Congress considers expanding the program.
It is important to note that during the period of the
current audit, SBA took steps to improve its oversight of the
Microloan Program. Those steps included the following:
Developed a justification to request funds
for technology improvements.
Conducted a time study to evaluate staff
time spent on tasks in support of technology
improvements.
Developed a module within the program
information system for new loan request analysis which
replaced the use of spreadsheets.
OIG Recommendations
To improve SBA's oversight of the Microloan Program, we
recommended the Associate Administrator for the Office of
Capital Access (1) continue efforts to improve the information
system for effective monitoring of the Microloan Program, (2)
develop a site visit plan to further monitor microloan
portfolio performance, (3) update SOP 52 00A to clarify
requirements regarding evidence for use of proceeds and credit
elsewhere, and (4) update the microloan reporting system manual
to reflect current technology capabilities.
Agency Response
SBA management agreed with the four recommendations offered
by OIG. Specifically, SBA plans to study and recommend
solutions to replace its microloan information system. SBA also
will develop a comprehensive site visit review program and will
update SOP 52 00A to clarify requirements regarding evidence
for use of proceeds and credit elsewhere. Additionally, SBA
will update the microloan reporting system user's manual to
reflect current technology capabilities.
CONCLUSION
The Microloan Program's mission is to integrate microlevel
financing with training and technical assistance for start-up,
newly established, existing, and growing small businesses.
Improvements are needed in SBA's oversight to validate
microloan data, conduct analyses across multiple programs and
systems, and capture outcome-based measures. Furthermore,
because Congress introduced two bills to expand the program,
adequate oversight is necessary to sufficiently measure program
performance and ensure the integrity of the program. The
exceptions we identified on the microloans demonstrate that SBA
must continue to improve its oversight to ensure the program is
meeting its intended purpose. When projecting our findings in
the 44 microloans to the microloan population, we estimate that
at least 9,196 of 12,157 microloans, totaling $137 million, had
deficiencies.
I am proud of the work performed by our auditors to shine
the light on the Microloan Program, appreciating it is timely
in context of the congressional debate to expand participation
in the program. As noted in the Congressional Research
Service's report titled Small Business Administration 7(a) Loan
Guaranty Program, dated September 15, 2017, inadequate
performance metrics are a persisting concern with SBA's lending
programs. OIG believes the recommendations offered in this
report will strengthen the management of the Microloan Program
and ultimately, facilitate a capacity and analyze date in a
manner that SBA can effectively measure performance of the
program.
OIG will continue to provide independent, objective
oversight to improve the integrity, accountability, and
performance of the SBA and its programs for the benefit of the
American people. Our focus is to keep SBA leadership, our
congressional stakeholders, and the public currently and fully
informed about the problems and deficiencies in the programs as
identified through our work. We value our relationship with
these Subcommittees, the Committee on Small Business, and the
Congress at large, and we look forward to working together to
address identified risks and the most pressing management
challenges facing SBA.
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Thank you Chairman Kelly, Ranking Member Adams, and the
entire Subcommittee for the opportunity to testify before you
today. It's great to be back here once again and to have the
ability to speak with you further about the Office of Capital
Access' Microloan Program.
I am grateful for the dialogue that we've seen between the
Office of Capital Access and the members of this Committee and
your staff. It is incredibly important to the SBA and the
American taxpayer that all of our lending programs are running
as efficiency and effectively as possible. In that pursuit, we
always value the feedback and input of this Committee when it
comes to helping entrepreneurs access capital across our great
country. We also appreciate the role the Office of Inspector
General plays in ensuring that programs are successfully
managed.
Administrator McMahon and the Office of Capital Access are
very focused on providing smaller dollar loans to small
business borrowers. Under Administrator McMahon's leadership,
there has been responsible growth in all of our lending
programs this year, including our Microloan Program.
Administrator McMahon understands the importance of these loans
and the life changing impact they can have for so many of our
nation's entrepreneurs and their communities. The SBA's
Microloan Program offers small dollar loans to businesses that
banks are simply unable to make. As we've seen for years, the
program has been incredibly successful in filling a need. For
example, in Fiscal Year 2017, the Microloan Program provided
small dollar loans with a reasonable interest rate to 4,708
small businesses.
As the Associate Administrator of the SBA's Office of
Capital Access, I am one hundred percent committed to upholding
the integrity of all of our loan programs and making sure that
they are run properly with maximum accountability to this
Committee and the American people. We do believe the Microloan
Program is being administered appropriately, but there is of
course always room for improvement.
As many of you know, in this program the SBA makes loans to
not-for-profit lending intermediaries who then make microloans
to small businesses for up to $50,000. However, the program has
an average loan size of just $13,800. Year-over-year, we have
seen a 5% increase in these loans which have created and/or
retained an estimated 17,500 American jobs. Another interesting
fact is that over 8% of our microloan recipients have gone on
to receive larger loans from the SBA. This is incredibly
encouraging and we would definitely like to see this number
continue to increase.
In the coming weeks the Office of Capital Access will also
be implementing new collaborative efforts with our Office of
Field Operations to increase the number of these loans in both
inner cities and rural areas. We view this initiative and
others such as the recent launch of our Lender Match program as
valuable tools in providing access to capital for entrepreneurs
looking to attain the American dream.
It is incredibly encouraging to see the impact that the
Microloan Program has had for so many American small business
owners. This program is a way for aspiring and existing small
business owners to access capital at a reasonable rate,
especially when you compare it to maxing out multiple credit
cards at much higher interest rates. I'd also like to note that
historically the Microloan Program has had a less than 2% loss
rate. Keeping that number as low as possible is incredibly
important for us at the SBA.
In regards to the recent Inspector General's audit of the
Microloan Program, the SBA has agreed to implement the
recommendations and has already begun working on enhancements
to its on-site reviews by district office staff. We are also
working on a project to evaluate system alternatives to
modernize our Microloan lending and reporting system.
Lastly, the Office of Capital Access is committed to
providing enhanced training to our lending intermediaries and
the Office of Economic Opportunity has already provided two
webinar trainings on how to properly document the ``credit
elsewhere'' test. The SBA is committed to implementing the
suggestions put forth in the Inspector General's most recent
audit. We believe we are well on our way to improving our
program and making it that much better for our nation's small
business owners and the American taxpayers.
Thank you again for this opportunity to discuss the
Microloan Program and I look forward to answering any questions
you may have.
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