During Wednesday’s Senate Small Businesses and Entrepreneurship Committee hearing, Sen. Joni Ernst (R-IA) questioned SBA Administrator Kelly Loeffler about risk management reform at the Small Business Administration.
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00:00Shoring up domestic production of critical goods is vital to America's economic and national security.
00:07I've been pleased to work with you and President Trump on SBA's Made in America Manufacturing Initiative.
00:15As I described in my opening statement, I introduced the Made in America Manufacturing Finance Act,
00:21along with Senator Chris Coons and House Small Business Committee Chairman Roger Williams,
00:27to increase the SBA-backed loan limit from $5 to $10 million for small manufacturers in the 7A and 504 loan programs.
00:37Why are higher loan limits necessary to grow our manufacturing capacity here in America?
00:44Chair Ernst, thank you for your question, and I'm grateful for your leadership on a bipartisan bill
00:49and hope that we can earn the support of the entire committee, given the importance.
00:54What we've seen as I've traveled the country, meeting with hundreds of small manufacturers,
01:00which, by the way, manufacturers under 500 employees represent about half of our productive capacity in America,
01:07is what I'm hearing is access to capital is critical.
01:11And particularly as we open export markets, those longer lead cycles are going to require more capital.
01:17But the facts are we haven't raised loan limits for about 15 years.
01:22And so what we've seen is the ability for small businesses to access capital is great through our 7A and 504 loan programs,
01:29but it's limited by that $5 million cap.
01:33And factories want to invest more in capital equipment.
01:36They want to hire.
01:36They want to bring on more manufacturing staff, a skilled workforce, which is critical to them.
01:42They're certainly focused on investing in America and grateful to President Trump for his leadership in restoring fair trade so that they can produce more.
01:52But access to capital is the number one concern we hear, not just as we talk to lenders who have seen the constraints firsthand with their manufacturing base,
02:01which is growing in America, but we've heard it firsthand.
02:04And I've heard manufacturers say that they already have the machines planned that they will purchase when they can get that access to capital
02:12and hopefully when this tax bill passes as well.
02:16So I look forward to working with this committee to ensure that these loan limits are expanded.
02:22And I do hear that as I'm traveling across Iowa as well and during my time here on the committee that access to capital is one of the most significant impacts on those small businesses.
02:36So in my letter to President Trump on January 21st of this year, I wrote about the challenges facing the SBA.
02:45And I noted that the 7A loan program was severely mismanaged by the previous administration, resulting in rising defaults that threaten the future of the program.
02:56And I know that you inherited a mess over at SBA, and I appreciate how hard you have been working to right the ship.
03:04Can you tell us what reforms you have made at the agency to assure us that these new, larger manufacturing loans won't result in losses that must be covered by American taxpayers?
03:18Thank you for the question, Chair Ernst.
03:20I come out of three decades of private sector experience, much of it in financial services and risk management.
03:26So that was one of the first questions I asked when I came into the agency.
03:30What is the status of risk management in this agency?
03:32It was, frankly, alarm to see what had been done to the 7A program under the Do What You Do standard operating procedure.
03:41We looked at the rising delinquencies and defaults that were happening in that program that had ramped up our delinquency rates.
03:50And we quickly got to working with the industry and small businesses to rein in that SOP
03:56and have established the SOP back to what it was prior to the Do What You Do standard.
04:02We've heard tremendous feedback from lenders and borrowers alike because they now have guardrails,
04:07and we are reining in that reckless lending program that happened under the Biden administration.
04:13So my focus is going to be continuing to evaluate the loan programs to ensure that they're sound,
04:19that they continue to operate at zero subsidy, meaning no cost to our taxpayers.
04:23Unfortunately, the four-year cohort under the Biden administration looks like it will have loan losses of $2.2 billion,
04:31putting taxpayers on the hook for sloppy underwriting, and it's unacceptable.
04:36To ensure that we don't go back to that, we evaluated the manufacturing loans,
04:43which the Biden administration, you know, we've doubled what the Biden administration has done almost in terms of manufacturing loans.
04:51We've looked at the performance at the highest ends in terms of the outstanding loan size.
04:57Those are some of the best performing loans because those lenders and borrowers have skin in the game,
05:03and those tend to go to plant expansions, and so we've done some backtesting on this.
05:09We've tested also the fee levels to ensure that the fee levels are sufficient
05:14and that the loan programs don't go against the zero subsidy mandate that we have from Congress.
05:20So I feel very good about the program and look forward to demonstrating that performance.
05:24Thank you, and I love that you said no more sloppy underwriting, and I truly appreciate it.
05:31Thank you, Administrator.