WASHINGTON – With access to capital regularly cited as a top concern among small business owners, last night Senator John Kerry (D-Mass.), Ranking Democrat on the Committee on Small Business and Entrepreneurship, introduced two pieces of legislation to expand and improve the Small Business Administration’s (SBA) two largest lending programs. Kerry was joined by Senators Mary Landrieu (D-La.) and Mark Pryor (D-Ark.) on the 7(a) Loan Program legislation and was joined by Pryor on the 504 Loan Program legislation. Kerry included a new proposal to give minority small firm owners an advocate in the SBA by creating an Office of Minority Small Business Development. The 7(a) program guarantees loans for qualified small businesses that would not be eligible for financing through normal channels. The 504 program promotes community economic development through long-term financing for small businesses to buy real estate or large equipment in order to expand and modernize their facilities.
“Access to capital remains one of the top obstacles to starting and growing a small business in this country,” said Kerry. “That’s why I’m introducing legislation to expand access to financing by increasing the amount of loans the government can back and expanding the network of lenders nationwide. My proposals will make it easier for small firms to get everything from loans for day-to-day expenses to larger investments in equipment -- without having to choose between them which can be make-or-break decisions. In addition, the bills include oversight provisions to hold lenders and community development companies accountable to the communities they serve.”
Last year, more than 105,000 small businesses received $27 billion in 7(a) and 504 loans, creating or retaining an estimated 605,000 jobs. Unfortunately, the proportion of 7(a) loan dollars to minorities and women has been mostly stagnant. Over the last five years, 504 loans have slightly increased to Hispanics and Asians, but have remained the same for African Americans and decreased for women.
“The Bush Administration is not doing nearly enough to ensure minority firms are able to remain innovative and competitive,” said Kerry. “My bill changes that by putting someone in charge of minority small business development and making the business concerns of African Americans, Hispanics, Asians and other minorities a priority. Unfortunately the Administration has put a commitment to investing in minority entrepreneurs on the sidelines for entirely too long. Too many minorities are still financing their businesses on credit cards or fear denial from lenders. That shouldn’t be the case. They deserve a fair chance and the knowledge that the SBA’s lending partners can help them to thrive and boost our economy.”
Kerry’s legislation to improve the 7(a) Loan Program includes the following provisions:
- Authorizes the government to guarantee nearly $60 billion in 7(a) loans over three years, specifically:
- $18.5 billion for 2007
- $19.5 billion for 2008
- $20.5 billion for 2009
- Creates an Office of Minority Small Business Development in the SBA, similar to the agency’s existing offices that focus on veterans and women, with an annual budget and requirements to monitor the outcome of SBA’s programs and ensure the SBA’s state offices have money to market to minorities.
- Creates a National Preferred Lenders Program to reduce the paperwork and streamline the approval process for lenders who have already demonstrated proficiency in making, closing, servicing, and liquidating loans and want to reach more borrowers by lending in many states.
- Establishes eligibility criteria and holds lenders accountable if they fail to meet the criteria.
- Allows small businesses who need both working capital under the 7(a) program and fixed asset financing under the 504 program to be eligible to receive maximum loan amounts under both programs so they are not forced to choose between them.
- Directs the SBA to establish a simple, straightforward optional size standard for business loans.
Kerry’s legislation to improve the 504 Loan Program renames it as the Certified Development Company Economic Development Loan Program and includes the following provisions:
- Authorizes the government to guarantee nearly $30 billion in 504 loans over three years, specifically:
- $8.5 billion for 2007
- $9.5 billion for 2008
- $10.5 billion for 2009
- Promotes expansion of Certified Development Companies (CDCs) in more communities, sets a new policy goal of expanding businesses in low-income communities, and defines the mission of CDCs.
- Sets accountability measures for CDCs by requiring annual reporting of all economic development activities in each state where they operate.
- Allows borrowers to save money by applying equity beyond the15-20 percent required for special use or start up projects to the less expensive, long-term financing part of the loan.
- Increases loan size for businesses that are owned by veterans, minorities, and women.
- Removes the “participation fee” lenders already pass on to borrowers and instead splits that fee between the CDC and small business. This saves borrowers upfront costs and requires a report to Congress outlining the impact of this change on fostering economic development.
- Permits CDCs to foreclose and liquidate defaulted loans and directs the SBA to develop a program for compensating CDCs for expenses incurred.