[Senate Report 111-342]
[From the U.S. Government Publishing Office]
Calendar No. 634
111th Congress Report
SENATE
2d Session 111-342
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SMALL BUSINESS JOB CREATION AND ACCESS TO CAPITAL ACT OF 2009
_______
September 29, 2010.--Ordered to be printed
_______
Ms. Landrieu, from the Committee on Small Business and
Entrepreneurship, submitted the following
R E P O R T
[To accompany S. 2869]
On December 17, 2009, the Senate Committee on Small
Business and Entrepreneurship (``the Committee'') reported, on
a vote of 17-1, S. 2869, the ``Small Business Job Creation and
Access to Capital Act of 2009,'' a bill to increase loan limits
for small business concerns; to provide for low interest
refinancing for small business concerns; and for other
purposes. Having considered S. 2869, the Committee reports
favorably thereon with an amendment and recommends that the
bill (as amended) pass.
I. INTRODUCTION
The Small Business Job Creation and Access to Capital Act
of 2009 (S. 2869) is a bill to permanently increase SBA loan
limits, to provide for low interest refinancing for small
businesses for a two-year period after enactment, and for other
purposes.
This bipartisan bill, reported out of Committee by a vote
of 17-1, was introduced by Senator Landrieu on December 10,
2009. In accordance with Senate procedure, original bills
reported from a Committee may only be introduced by one
Senator. Members of the Committee wishing to cosponsor the bill
include: Senators Snowe, Kerry, Shaheen, Lieberman, Levin,
Pryor, Bayh, Isakson, Cardin, and Cantwell. Other Senators
cosponsoring the bill include: Senators Bennet, Bingaman,
Boxer, Burris, Casey, Dorgan, Feinstein, Johanns, Johnson,
Klobuchar, Lincoln, McCaskill, Merkley, Murray, Specter,
Stabenow and Udall. In total, 27 Senators cosponsored the bill.
During the markup of the bill, the Committee adopted a
Manager's Amendment that included a modified amendment
submitted by Senator Levin and a modified amendment submitted
by Senator Thune. The vote on the Manager's amendment was
adopted as part of the en bloc vote on the amendment and final
passage of the bill. The en bloc vote was 17-1, with one member
absent.
As the name implies, the Small Business Job Creation and
Access to Capital Act of 2009 is targeted towards increasing
small business access to capital. In preparing to introduce
this legislation, the Committee held a series of hearings,
meetings and roundtables analyzing the SBA's loan programs and
heard from small businesses and small business lenders on
increasing the maximum loan sizes on 7(a), 504 and microloans.
On October 1, 2009, the Committee held a roundtable on the
``Reauthorization of SBA Finance Programs and the Impact of the
Small Business Provisions in the Recovery Act.'' The Committee
addressed issues regarding the Small Business Administration
(``SBA'') finance programs, the status of SBA provisions in the
Recovery Act and what steps the Committee should take to ensure
that small businesses have access to affordable capital.
Increasing loan limits and enhancing the ability to refinance
existing qualified debts into 504 loans were a significant
focus of the discussions.
On October 6, 2009, the Committee held a hearing titled
``The Recovery Act for Small Businesses: What is Working and
What Comes Next?'' The Committee heard testimony on the impact
that the Recovery Act has had on SBA loan volume and what steps
could be taken to expand access to capital for small
businesses.
This legislation is based on S. 1256, the ``Small Business
Lending Reauthorization and Improvement Act of 2007,'' which
was introduced by Senator Kerry on May 1, 2007, and addressed
increasing 7(a) and 504 loan limits. Additionally, this
legislation is based on S. 3596, the ``Small Business Lending
Market Stabilization Act of 2008,'' which was introduced by
Senator Kerry on September 25, 2008, and addressed lowering of
SBA fees and refinancing debt through the 504 program. This
legislation is also based on S. 1615, the ``Next Step for Main
Street Credit Availability Act of 2009,'' which was introduced
by Ranking Member Snowe on August 6, 2009, and on S. 3705, the
``10 Steps for a Main Street Economic Recovery Act,'' which was
introduced by Ranking Member Snowe in the 110th Congress on
November 19, 2008. Both bills included increases in 7(a) and
504 loan limits. S. 1615 contained a provision calling on the
SBA Administrator to establish an online lending platform
website that lists each SBA lender and allows borrowers to
compare rates and apply online for SBA loans.
II. DESCRIPTION OF BILL
TITLE I--NEXT STEPS FOR MAIN STREET CREDIT AVAILABILITY
This title of the bill increases the maximum amount that
can be loaned under the SBA's 7(a), 504 and microloan programs;
extends the 90 percent guarantee on 7(a) loans from February
17, 2010, until December 31, 2010; extends the authorization
for the elimination of borrower fees on 7(a) and 504 loans from
September 30, 2010, until December 31, 2010; updates the amount
a New Market Venture Capital Company can invest in any
individual company; requires the SBA to establish an
alternative size standard for 7(a) and 504 applicants;
establishes a temporary alternative size standard for 7(a) and
504 applicants; allows for 7(a) loans to be divided into
multiple pools for sale on the secondary market; and adopts a
sense of Congress that the SBA establish an online lending
platform.
The specific increases in the maximum loan sizes are as
follows:
The maximum size of a 7(a) loan increases
from $2 million to $5 million and the maximum guarantee
amount increases from $1.5 million to $4.5 million
(based on a 90-percent guarantee), and returns to a
maximum of $3.75 million (based on a 75 to 85 percent
guarantee) after December 31, 2010.
The maximum size of a 504 loan increases
from $1.5 million to $5 million for regular 504 loans;
from $2 million to $5 million for 504 loans that meet
public policy goals, such as for women-owned
businesses; and from $4 million to $5.5 million for 504
loans to small manufacturers, for projects that reduce
a borrower's energy consumption by at least ten
percent, and for projects that generate renewable
energy or renewable fuels.
The maximum size of a microloan to a small
business increases from $35,000 to $50,000, and the
maximum amount of loan dollars outstanding to a
microloan intermediary increases from $3.5 million to
$5 million.
TITLE II--SMALL BUSINESS ACCESS TO CAPITAL
This title of the bill establishes a temporary program that
allows Certified Development Companies to refinance existing
commercial real estate debt through the 504 loan program. Small
businesses are currently allowed to refinance debt into a 504
loan if they are expanding. This legislation removes the
expansion requirement for two years, but adds a new requirement
that eligible firms retain one employee for every $65,000 lent
borrowed. Additionally, to be eligible for this program, the
business must have been current for the past year on the debt
they are refinancing, and they cannot exceed 80 percent loan to
value on the new loan. The legislation allows for multiple
sources for the business owner to meet the equity requirement
set forth under the legislation. This title also allows small
businesses to use equity in their real property for working
capital. To cover expenses for this temporary change to the 504
program, the SBA is allowed to assess additional fees.
TITLE III--OTHER MATTERS
This title of the bill adds a pilot program to increase
access to capital for small businesses needing amounts larger
than microloans but not yet ready for 7(a) loans, and it
includes a provision that places restrictions on how this bill
can be funded.
The Intermediary Lending Pilot Program would authorize a
new three-year pilot program in which the SBA would make loans
of $1 million at an interest rate of 1 percent to 20 local
private, non-profit lending intermediaries to capitalize small
business revolving funds. Intermediaries would not pay any fees
or provide any collateral to the SBA for their loans, and
intermediaries would be granted a two-year grace period on
principal and interest repayments to the SBA.
The purpose of the pilot program is to assist small
business concerns suffering from a lack of credit due to poor
economic conditions or changes in the financial market. It aims
to provide flexible loan products to businesses with credit
needs that exceed the loan limits of the SBA's Microloan
program and that, for a variety of reasons, including lack of
sufficient collateral, are unable to secure the credit with
practicable terms through a conventional lender, even with the
assistance of a 7(a) loan guarantee. Intermediaries would use
their SBA loans to capitalize revolving loan funds through
which loans between $50,000 and $200,000 would be made to small
businesses in need of flexible debt financing.
Senator Thune authored a provision prohibiting the use of
Troubled Asset Relief Program (TARP) authority or tax increases
establishing a restriction on how this bill can be funded when
certain conditions are met. The restriction on the use of TARP
funds prohibits using the ``. . . amounts made available to the
Secretary of the Treasury under title I of the Emergency
Economic Stabilization Act of 2008 (12 U.S.C. 5201 et seq.) to
purchase (under section 101) or guarantee (under section 102)
assets under that Act.''
This restriction is written to bind the actions of the
Secretary of the Treasury by ensuring that TARP authority is
not used either to offset, purchase, or guarantee assets in
order to fund this bill.
The restriction on using funds of a revenue increase only
applies if that increase was attributed directly to this bill
during the time of the increase. This increase must be done as
an amendment to the Internal Revenue Code of 1986 and must be
done between the date this legislation is enacted and ending on
December 31, 2010. Even with this restriction, no Congress can
bind a future Congress. Therefore, if a revenue increase were
to meet the conditions outlined; it would not be prohibited
from being used to fund this legislation. Additionally, the
``last in time'' principle, which states that if there is
conflicting legislation the latest bill passed would supersede
anything passed previously, would nullify this section should
another bill raise revenue that meets the requirements of the
legislation.
This section makes it clear that except as provided in
subsection (b) of Section 302 of the bill, nothing in this Act
or the amendments made by this Act shall be construed to limit
the ability of Congress to appropriate funds.
III. COMMITTEE VOTE
In compliance with rule XXVI(7b) of the Standing Rules of
the Senate, the following votes were recorded on December 17,
2009.
A motion by Senator Landrieu to adopt the ``Small Business
Job Creation and Access to Capital Act of 2009,'' with a
Manager's Amendment (which added the provisions of title III),
was approved by an en bloc vote of 17-1, with the following
Senators voting in the affirmative: Landrieu, Kerry, Levin,
Harkin, Lieberman, Cantwell, Bayh, Pryor, Cardin, Shaheen,
Hagan, Snowe, Vitter, Thune, Enzi, Isakson, Risch. The
following Senator voting in the negative: Bond. The following
Senator not voting: Wicker.
IV. COST ESTIMATE
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office.
January 26, 2010.
Hon. Mary L. Landrieu,
Chair, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Madam Chair: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2869, the Small
Business Job Creation and Access to Capital Act of 2009.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
S. 2869--Small Business Job Creation and Access to Capital Act of 2009
Summary: S. 2869 would make changes to several business
loan and loan guarantee programs operated by the Small Business
Administration (SBA). The bill also would establish a new pilot
program, modeled after SBA's microloan program, to make loans
to intermediaries that would then make loans to new and
expanding small businesses. Based on information from SBA, CBO
estimates that implementing S. 2869 would cost $23 million over
the 2010-2015 period, assuming appropriation of the necessary
amounts. CBO estimates that enacting S. 2869 would have no
effect on direct spending or revenues.
S. 2869 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 2869 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------
2010 2011 2012 2013 2014 2015 2010-2015
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CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level.............................. 8 8 8 0 0 0 24
Estimated Outlays.......................................... 4 6 7 3 2 1 23
----------------------------------------------------------------------------------------------------------------
Basis of estimate: For this estimate CBO assumes that S.
2869 will be enacted early in 2010, the necessary amounts will
be appropriated each year, and spending will follow historical
patterns. Based on information from SBA, CBO estimates that
implementing S. 2869 would cost $23 million over the 2010-2015
period, assuming appropriation of the necessary amounts.
The budgetary accounting for SBA's direct loan and loan
guarantee programs is governed by the Federal Credit Reform Act
of 1990, which requires an appropriation of the subsidy and
administrative costs associated with loan guarantees and loan
operations. The subsidy cost is the estimated long-term cost to
the government of a loan or loan guarantee, calculated on a
net-present-value basis, excluding administrative costs.
Administrative costs, recorded on a cash basis, include
activities related to making, servicing, and liquidating loans
as well as overseeing the performance of lenders.
Small Business Intermediary Lending Program
The bill would authorize a three-year program to provide
loans ranging in size from $35,000 to $200,000 to nonprofit
lenders that would, in turn, make loans to eligible small
businesses. The program, modeled after the microloan program,
would feature a 20-year loan term, an interest rate of 1
percent, and a two-year grace period before principal and
interest payments would be first due. The bill would authorize
$20 million in loans for each of fiscal years 2010 through
2012. Based on information from SBA, CBO estimates that the
subsidy rate for the program would be about 38 percent; the
difference between the governments's borrowing rate and the
rate SBA would charge the borrowers makes up nearly half of the
subsidy cost. We estimate that the subsidy cost for the
authorized loan amounts would be $23 million over the 2010-2015
period.
Business loan programs
Other provisions of S. 2869 would make changes to several
of SBA's existing business loan programs. The bill would:
Increase the maximum size of loans that SBA
would be authorized to guarantee under the 7(a) and 504
loan programs;
For a limited time, increase the guarantee
percentage on 7(a) loans from up to 85 percent to 90
percent of the amount of the loan; and
Increase the maximum size of loans
intermediaries would be authorized to make to small
businesses under the microloan program and the maximum
amount an intermediary can loan to a single borrower.
SBA's 7(a) program provides limited guarantees on loans
made by certain lending institutions to small businesses; the
504 program (also known as the certified development company
program) provides guarantees on debentures issued by certified
development companies to provide funding to small businesses
for major fixed assets. The microloan program provides direct
loans to nonprofit lenders which then offer loans to small
businesses just starting up, whose capital needs are too small
to qualify for the 7(a) program. Estimated subsidy rates for
those programs range from zero percent for the 504 program to
about 12 percent for the microloan program.
Based on information from SBA, CBO expects that changing
the loan terms would not significantly affect the programs'
estimated subsidy rates. Thus, CBO estimates that implementing
those changes would not significantly affect spending subject
to appropriation.
Intergovernmental and private-sector impact:S. 2869
contains no intergovernmental or private-sector mandates as
defined in UMRA. The bill would benefit tribal governments by
establishing a grant program for tribal agencies to provide
loans to new and growing businesses. Any costs to tribal
governments of participating in the program would be incurred
voluntarily.
Estimate prepared by:Federal costs: Susan Willie;Impact on
state, local, and tribal governments: Elizabeth Cove
Delisle;Impact on the private sector: Sam Wice.
Estimate approved by:Theresa Gullo,Deputy Assistant
Director for Budget Analysis.
V. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
VI. SECTION-BY-SECTION ANALYSIS
Section 1. Short title
TITLE I--NEXT STEPS FOR MAIN STREET CREDIT AVAILABILITY
Section 101. Section 7(a) business loans
This section permanently increases the maximum loan and
guarantee sizes for 7(a) loans and temporarily extends a higher
guarantee. Specifically, the 7(a) loan size increases from $2
million to $5 million, and the maximum guarantee amount
increases from $1.5 million to $4.5 million, based on a 90
percent guarantee. The 90 percent guarantee is temporary,
authorized through December 31, 2010, and then reverts back to
the permanent levels of 85 percent for loans of $150,000 and
less, and to 75 percent for loans that are more than $150,000.
At that time, the maximum guarantee will also revert back to
$3.75 million from $4.5 million. The higher loan amounts help
businesses in need of floor plan financing, as well as small
manufacturers, hotels, restaurants, franchisees, and those
located in high-cost areas.
Section 102. Maximum loan amounts under 504 Program
This section increases from $1.5 to $5 million, the loan
limit for regular 504 loans; from $2 million to $5 million for
loans that meet public policy goals, such as for women-owned
businesses; and from $4 million to $5.5 million for loans to
small manufacturers, for projects that reduce a borrower's
energy consumption by at least ten percent, and for projects
that generate renewable energy or renewable fuels.
Section 103. Maximum loan limits under Microloan Program
This section increases the maximum loan a microloan
intermediary can make to a small business from $35,000 to
$50,000 and increases the maximum loan a microloan intermediary
can receive from $3.5 million to $5 million.
Section 104. Temporary fee reductions
This section extends the waivers for the 7(a) borrower fees
and the 504 borrower and bank fees enacted as part of the
American Recovery and Reinvestment Act (ARRA or the Recovery
Act) from September 30, 2010, to December 31, 2010. This is
solely an authorization and will need separate appropriations
to be implemented.
Section 105. New Markets Venture Capital company investment limitations
This section fixes an omission in the Recovery Act so that
New Markets Venture Capital (NMVC) firms have equal treatment
to Small Business Investment Companies (SBICs), as Congress
intended. Specifically, it updates the limit on the size of the
investment a NMVC fund can invest in any one company, making
the program more attractive to investors and small businesses,
and bringing them in-line with private-sector practices.
Section 106. Alternative size standards
This section requires the SBA to establish an optional size
standard which is applicable to both 7(a) borrowers and 504
borrowers. Specifically, the new standard utilizes a maximum
tangible net worth and an average net income as an alternative
to industry standards, which are considered confusing and
burdensome. In addition, until an alternative size standard is
established as required by this section, this bill directs the
Administration to issue an interim final rule making borrowers
for 7(a) and 504 loans eligible for such loans if their maximum
tangible net worth is $15 million or less and their average net
income after Federal income taxes for the two full fiscal years
before the date of application does not exceed $5 million.
Section 107. Sale of 7(a) loans in secondary market
This section allows the Administration to approve a request
from a pool assembler of SBA loan guarantees to divide loan
guarantees into increments of $500,000 for SBA loans that have
a guarantee portion of more than $500,000. The purpose of this
section is to maintain the marketability of 7(a) loans in the
secondary market as the loan limits increase.
Section 108. Online lending platform
This section adopts a sense of the Congress that the
Administrator should establish a website that lists each lender
that makes SBA guaranteed loans as well as the lender's rates
so that businesses, or potential business owners, can identify
SBA lenders in their area and compare rates.
TITLE II--SMALL BUSINESS ACCESS TO CAPITAL
Section 202. Low interest refinancing under the local development
business loan program
This section temporarily (two years) amends the Small
Business Investment Act so that businesses can use 504 loan
guarantees to refinance existing business debt, if it is
current, even if the business is not expanding. A business is
eligible for this refinancing if they create or retain one job
per $65,000 borrowed. The business will be able to finance
$65,000 per job retained, or up to $5.5 million, based on the
job creation requirements. This provision complements a 504
refinance provision adopted as part of the Recovery Act,
enhancing a small business's options to maintain a healthy cash
flow until the economy improves.
TITLE III--OTHER MATTERS
Section 301. Small business Intermediary Lending Pilot Program
This section authorizes a pilot program for intermediaries
making loans between $50,000 and $200,000.
The Intermediary Lending Pilot Program would authorize a
new three-year pilot program in which the SBA would make loans
of $1 million at an interest rate of 1 percent to 20 local
private non-profit lending intermediaries to capitalize small
business revolving funds. Intermediaries would not pay any fees
or provide any collateral to the SBA for their loans and
intermediaries would be granted a two-year grace period on
principal and interest repayments to the SBA.
The purpose of the pilot program is to assist small
business concerns suffering from a lack of credit due to poor
economic conditions or changes in the financial market. It aims
to provide flexible loan products to businesses with credit
needs that exceed the loan limits of the SBA's Microloan
program and that, for a variety of reasons, including lack of
sufficient collateral, are unable to secure the credit with
practicable terms through a conventional lender, even with the
assistance of a 7(a) guarantee. Intermediaries would use their
SBA loans to capitalize revolving loan funds through which
loans of up to $200,000 would be made to small businesses in
need of flexible debt financing.
Section 302. Prohibition on using TARP funds or tax increases
This section outlines the prohibition on using certain
funds to finance this bill. Specifically, it prohibits the use
of Troubled Asset Relief Program (TARP) funds ``amounts made
available to the Secretary of the Treasury under title I of the
Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5201 et
seq.) to purchase (under section 101) or guarantee (under
section 102) assets under that Act.'' Additionally, the bill
restricts and the use of funds from any revenue increase
attributable to any amendment to the Internal Revenue Code of
1986 made during the period beginning on the date of enactment
of this Act and ending on December 31, 2010.
This section makes it clear that except as provided in
subsection (b) of Section 302 of the bill, nothing in this Act
or the amendments made by this Act shall be construed to limit
the ability of Congress to appropriate funds.