WASHINGTON - Upon the urging of Sen. John Kerry, Chairman of the Senate Committee on Small Business and Entrepreneurship, and Sen. Charles Schumer (D-NY), a senior member of the Senate Committee on Banking, the Small Business Administration (SBA) is changing two aspects of their lending programs that will help ease the credit crunch.
“I’ve been pushing for these changes since May 2007, but the Administration refused to act and blocked Congress when we tried to do it in a bill. After much urging from both sides of the aisle I’m happy that the SBA has finally decided to step in to provide some relief to small firms,” said Kerry. “These are easy administrative changes that should have been made before our long-building credit crunch spun out of control.”
One of the changes being made by the SBA would give lenders the discretion to use an alternative variable interest rate to the Prime interest rate. Lenders will now be able to use the London Interbank Offered Rate (LIBOR). Additionally, the SBA will allow loans with various interest rates to be pooled for sale on the secondary market rather than allowing only loans with the same rate to be pooled. These various rate pools are also known as Weighted Average Coupon (WAC) pools. The changes published in the Federal Register today will improve small business lending and make it easier for banks to sell the loans on the secondary market.
Kerry has pushed for these changes over the past year and most recently sent a letter to President Bush and, along with Schumer, a letter to Acting Administrator Baruah. Both letters included these and other changes that would alter the SBA’s loan programs to make it easier for borrowers and lenders in these tough economic times. Loans to small businesses through the SBA’s largest small business lending program are down 53 percent compared to this time last year.
“These are just two of the many changes that the administration can make immediately,” said Kerry. “More help is needed because entrepreneurs can’t wait for the rescue package to reach them.”
“Small businesses are the backbone of our economy and we need to use every tool in the box to ensure that they promptly get the credit needed to survive,” Schumer said. “I thank the SBA for implementing these two common-sense reforms to improve credit access for small businesses. I also urge the Bush Administration to take further action on some of the bigger issues, such as bridge loans via the SBA disaster program. The credit markets for small businesses remain frozen, and millions of workers and business owners are counting on quick action to protect their jobs and livelihood. These businesses are the backbone of our economy and if their credit dries up, the national economy will only continue to freefall. We also need to ensure that the Fed and Treasury are doing everything they can to protect the secondary market for small business loans.”