[Senate Report 115-438]
[From the U.S. Government Publishing Office]
Calendar No. 634
115th Congress } { Report
SENATE
2d Session } { 115-438
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SMALL BUSINESS ACCESS TO CAPITAL AND EFFICIENCY (ACE) ACT
_______
December 19, 2018.--Ordered to be printed
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Mr. Risch, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 3553]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill (S. 3553) to amend the Small
Business Investment Act to align the real estate appraisal
thresholds under the section 504 program of the Small Business
Administration with the threshold used by the Federal banking
regulators, and for other purposes, having considered the same,
reports favorably thereon without amendment and recommends that
the bill do pass.
I. INTRODUCTION
The Small Business Access to Capital and Efficiency (ACE)
Act was introduced by Chairman James E. Risch on October 5,
2018.
The bill amends the Small Business Investment Act of 1958
to align the appraisal threshold amount for SBA's 504 loan
guaranty program to the Federal banking regulators' threshold
amount for commercial real estate transactions, or the lesser
amount of the three Federal banking regulators' (Federal
Reserve System, Federal Deposit Insurance Corporation and
Comptroller of the Currency) threshold for commercial real
estate transactions, if there is a discrepancy. The bill was
approved unanimously by a roll call vote as part of a six-bill
manager's package.
II. HISTORY (PURPOSE & NEED FOR LEGISLATION)
The Small Business Administration (SBA) administers a
number of loan programs to provide access to capital to fit the
needs of entrepreneurs and small businesses who are unable to
obtain conventional credit. One of these programs, the 504/
Certified Development Company (CDC) Loan Program, provides
long-term, fixed rate financing that is used to acquire fixed
assets for expansion or modernization. These loans are made
available through Certified Development Companies (CDCs), which
serve as SBA's community based partners for providing 504
loans. 504 loans are structured with a third-party lender
providing 50 percent of the financing (taking the first lien
position), the CDC providing up to 40 percent of the financing
through a SBA guaranteed debenture (taking the second lien
position), and the applicant providing at least 10 percent of
the financing.\1\
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\1\Dilger, Robert Jay. Updated November 7, 2018. Small Business
Administration 504/CDC Loan Guaranty Program. Retrieved from: http://
www.crs.gov/Reports/R41184.
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The 504/CDC loan guaranty program is unique amongst SBA's
loan products in part due to its requirements with regard to
economic development. A business must create or retain one job
for every $65,000 guaranteed by the SBA, while small
manufacturers must create or retain a ratio of one job for
every $100,000 guaranteed. As an alternative to the job
creation requirement, a business may qualify if it meets a
community development or public policy goal and the CDC lender
maintains its portfolio job average requirement. Community
development goals include: improving, diversifying or
stabilizing the local economy; stimulating other business
development; bringing new income into the community; assisting
manufacturing firms; or assisting businesses in Labor Surplus
Areas. Conversely, public policy goals that qualify include:
revitalizing a business district of a community with a written
revitalization or redevelopment plan; expanding exports;
expanding small businesses owned and controlled by women;
expanding small businesses owned and controlled by veterans;
expanding minority business development; aiding rural
development; and increasing productivity and competitiveness.
The 504/CDC loan guaranty program provides an important
option for borrowers seeking financing for major fixed assets
such as land, buildings, equipment, and machinery, while
providing an economic benefit to the community. In FY 2018, the
SBA approved 5,874 504 loans amounting to nearly $4.8
billion.\2\
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\2\Id.
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Because of the long-term, fixed-rate terms associated with
the 504/CDC loan guaranty program and its focus on fixed
assets, the program is often used to secure real estate for
small businesses. Since 2000, the SBA loan programs have
required appraisals for commercial real estate transactions
consistent with the appraisal threshold level set by the
Federal banking regulators for conventional commercial real
estate loans in 1994.\3\ While the threshold level for
conventional commercial real estate loans is set by regulation,
the threshold level for 504 commercial real estate loans is set
by statute under the Small Business Investment Act of 1958.
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\3\OCC: 12 CFR 34.42(d); Federal Reserve: 12 CFR 225.62(d); and
FDIC: 12 CFR 323.2(d).
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On April 9, 2018, after a year of dialogue with industry
stakeholders, the Board of Governors of the Federal Reserve
(Federal Reserve), the Federal Deposit Insurance Corporation
(FDIC), and the Office of the Comptroller of the Currency (OCC)
together issued a final rule increasing the appraisal threshold
for commercial real estate loans from $250,000 to $500,000.\4\
Part of the impetus for this change stems from the increase in
commercial property values since the threshold was established
in 1994; due to these increased values, financial institutions
were required to get formal appraisals on a larger proportion
of transactions than when the standard was originally set.
Additionally, through the rulemaking process, regulators
determined that the increase in the number of appraisals
required may contribute to a higher burden and cost to
financial institutions. Regulators concluded that increasing
this threshold would reduce the burden for both rural and non-
rural institutions while posing no threat to the safety and
soundness of financial institutions.
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\4\83 FR 15019.
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Because the threshold for SBA's 504/CDC loan guaranty
program is set at $250,000 in statute, legislation is required
to harmonize and modernize SBA's loan program requirements with
the threshold set by Federal banking regulators.
III. DESCRIPTION OF BILL
The bill amends the Small Business Investment Act of 1958
to align the appraisal threshold amount for SBA's 504 loan
guaranty program to the Federal banking regulators' threshold
amount for commercial real estate transactions, or the lesser
amount of the three Federal banking regulators' (Federal
Reserve System, Federal Deposit Insurance Corporation and
Comptroller of the Currency) threshold for commercial real
estate transactions, if there is a discrepancy. This change
ensures that the 504 loan guaranty program's appraisal
threshold is always in harmony with the Federal banking
threshold for conventional loans.
IV. COMMITTEE VOTE
In compliance with rule XXVI (7)(b) of the Standing Rules
of the Senate, the following vote was recorded on October 11,
2018.
A motion to adopt the Small Business Access to Capital and
Efficiency (ACE) Act, a bill to amend the Small Business
Investment Act of 1958 to align the real estate appraisal
thresholds under the section 504 loan guaranty program of the
Small Business Administration to bring those thresholds into
line with the thresholds used by the Federal banking
regulators, and for other purposes, was approved unanimously,
by a roll call vote of 19-0, as part of a six-bill manager's
package.\5\ Senators Risch, Cardin, Rubio, Paul, Scott, Ernst,
Inhofe, Young, Enzi, Rounds, Kennedy, Cantwell, Shaheen,
Heitkamp, Markey, Booker, Coons, Hirono, and Duckworth voted
for the bill.
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\5\The manager's package included: the substitute amendment for S.
2679, the Veterans Small Business Enhancement Act; S. 3552, the 7(a)
Real Estate Appraisal Harmonization Act; S. 3553, the Small Business
Access to Capital and Efficiency Act; S. 3554, a bill to extend
effective date for the sunset for collateral requirements for Small
Business Administration disaster loans; S. 3561, the National Guard and
Reserve Entrepreneurship Support Act; and S. 3562, the Small Business
Runway Extension Act of 2018.
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V. 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:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 15, 2018.
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 3553, the Small
Business ACE Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
Under current law, small businesses that receive loans
under the Small Business Administration's (SBA's) 504/Certified
Development Company Loan program are required to receive an
appraisal on commercial real property used as collateral in
securing those loans if the estimated value of the property is
$250,000 or greater. S. 3553 would raise that threshold to the
lowest of the thresholds used by the Board of Governors of the
Federal Reserve System, the Comptroller of the Currency, and
the Federal Deposit Insurance Corporation to determine when a
commercial real estate transaction requires an appraisal. The
threshold for all three agencies is currently $500,000.
Using information from the SBA on the costs of similar
activities, CBO estimates that implementing the bill would cost
less than $500,000 for the agency to update its program rules;
such spending would be subject to the availability of
appropriated funds. CBO also estimates that any change in the
subsidy cost of SBA loans, which is subject to appropriation,
would also be insignificant.
Enacting S. 3553 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
CBO estimates that enacting S. 3553 would not increase net
direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2029. S. 3553 contains
no intergovernmental or private-sector mandates as defined in
the Unfunded Mandates Reform Act.
On August 13, 2018, CBO transmitted a cost estimate for
H.R. 6348, the Small Business ACE Act, as ordered reported by
the House Committee on Small Business on July 18, 2018. The two
pieces of legislation are similar and CBO's estimates of their
budgetary effects is the same.
The CBO staff contact for this estimate is Stephen Rabent.
The estimate was reviewed by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
VI. 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.
VII. SECTION-BY-SECTION ANALYSIS
Section 1: Short title
This section provides the short title for the Act, the
``Small Business Access to Capital and Efficiency Act'' or the
``Small Business ACE Act.''
Section 2: Appraisal thresholds
This section amends section 502(3)(E)(ii) of the Small
Business Investment Act of 1958 (15 U.S.C. 696(3)(E)(ii)) by
updating the SBA's 504/CDC loan guaranty program's commercial
real estate threshold to parallel the threshold set by Federal
banking regulators for conventional commercial real estate
loans.
This section does not specify a dollar amount for 504
commercial real estate loans, but rather modernizes the statute
to match the 504 appraisal threshold to the lowest level set by
the Federal banking regulators, should they differ. Currently,
the regulators have together set this level at $500,000 as of
April 9, 2018. This language is important to ensure lenders who
provide SBA products along with their conventional products--
most of whom are federally regulated--do not have an added
layer of complexity managing two different appraisal
thresholds, while guaranteeing small business borrowers who
cannot obtain credit elsewhere are not required to get an
appraisal on loans that conventional borrowers do not have to
obtain. This language also provides long-term clarity and
certainty to lenders and borrowers by unifying the 504
program's appraisal threshold with the Federal banking
regulators threshold moving forward.
[all]