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Questions for Administrator Guzman, House Small Business Committee

Tomorrow, the House Small Business Committee will hear from Isabel Guzman, Administrator of the Small Business Administration (SBA). After nearly 20 months during which crisis response consumed the agency, the SBA has entered a new forward-looking phase. It is extracting lessons learned from the COVID-19 experience and trying to determine how the agency can adapt to a shifting landscape.

The hearing is a chance for members of Congress to focus on those lessons and how the SBA plans to apply them to existing programs and new initiatives. It is also an opportunity for the Small Business Committee to understand what changes the SBA is making—and will make—to address deep-seated challenges exposed by the COVID crisis.

1. What changes is SBA making—and what changes does SBA need congressional support for—to manage its higher profile and expectations? In any given year, prior to COVID-19, the SBA interacted with less than 10 percent of small employer businesses. During the pandemic, the agency touched nearly all small businesses, both employer and nonemployer. This has created a larger public profile for the agency as well as greater public expectations. There will likely be stronger demand for SBA products, programs, and services as well as more questions asked by stakeholders about the agency’s performance.

2. What additional controls is SBA putting in place to manage and limit fraud? Inspector General reports have found billions of dollars in fraudulent and misspent loan funds. The sheer volume of pandemic relief overwhelmed existing systems. The agency has been working closely with the Department of Justice and others to investigate specific cases. Yet clearly additional changes will be needed to limit fraud in the future.

3. What efforts are being made by SBA—and what assistance can Congress provide—to scale the capabilities of the Economic Injury Disaster Loan (EIDL) program? That program was not built to respond to a nationwide pandemic, yet the COVID-19 crisis made clear that technology modernization is needed to enhance deployment of EIDL relief. There will be future emergencies—hopefully none on the scale of the pandemic—and this experience has taught that scaling EIDL should be an agency priority.

4. Would traditional lenders, in the existing delegated system, make more small-dollar loans if they were able to charge a slightly higher rate or fee? We know there is considerable demand for small loans, particularly those under $150,000. Yet the average size of an SBA-backed loan has steadily risen as traditional lenders have shied away from making such loans because of their high cost. Some lenders have said that if they were allowed to charge a higher rate—say, two more percentage points—they could make these loans. Meanwhile, during the pandemic, online lenders played an important role in distributing PPP loans and reaching borrowers not reached by traditional lenders. The possibility of including these lenders in existing SBA loan guarantee programs could help close the small-dollar gap.

5. What changes need to be made—either by SBA or Congress—to manage the economics of smaller loans as direct lending by government potentially increases? One proposed route to closing the small-dollar loan gap is through greater direct lending by SBA. Moving down-market significantly increases financial risks. The SBA needs a plan to address those risks and maintain its long-term viability as a zero-subsidy agency.

The Bipartisan Policy Center is committed to working with the SBA and members of Congress on these and other issues. Our recently launched Task Force on the Future of SBA will be working over the next several months to identify bipartisan policy ideas that can enhance the capabilities of the agency, address areas of improvement, and strengthen the government’s support for small businesses and entrepreneurs.

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