WASHINGTON – The United States Senate today voted to pass the Economic Recovery Package and send it to President Obama’s desk. The bill includes key provisions championed by Small Business and Entrepreneurship Committee Chair Mary Landrieu, D-La., and Ranking Member Olympia J. Snowe, R-Maine, aimed at assisting small businesses in the wake of the current economic crisis. The package represents an important first step toward increasing access to capital for entrepreneurs and helping small firms save and create jobs.
“The Economic Recovery Package is a good step toward making it easier for small businesses to get loans and venture capital,” Sen. Landrieu said. “The bill will make it possible for us to pump about $16 billion in loans and venture capital into small businesses in our communities, creating or saving hundreds of thousands of jobs. By reducing fees on SBA loans while increasing the SBA loan guarantee on 7(a) loans to 90 percent, the bill will make it easier for borrowers to afford new loans and provide a higher level of protection for risk-weary lenders. The bill also provides significant assistance to microbusinesses, loosens the secondary market for SBA loans, makes it possible for small businesses to compete for Federal contracts and includes assistance to businesses that are experiencing immediate financial hardship.
“There is still much work left to be done. I intend to work with Ranking Member Snowe to reverse the downward spiral of funding to the SBA, strengthen the SBA’s disaster loan program and encourage President Obama to elevate the SBA Administrator to a Cabinet-level position.”
“I am very pleased that this Conference Report includes several provisions vital to our nation’s 27 million small businesses that Chair Landrieu, Senator Kerry, and I authored and fought for over the last two Congresses,” said Sen. Snowe. “From a temporary elimination of SBA borrower fees and a reduction in lender fees, to increased funding for the SBA’s surety bond and microloan programs, to a new business stabilization loan program, this bill contains numerous measures designed to thaw frozen credit markets and get small businesses on the road to driving our economic recovery. We can waste no time in jumpstarting our economy, and this stimulus legislation takes a critical step toward economic revitalization.”
“Small businesses in Maryland and around the country are hurting. They have been calling for us to take bold action and that’s exactly what we are delivering,” said Senator Benjamin Cardin, D-Md., who fought to include a provision in the bill that would fund the SBA’s surety bond program. “This legislation provides significant opportunities for small businesses. Raising the caps for the surety bond program, for example, will allow more small businesses to compete for more federal projects, creating jobs now, investing in America’s future and helping to drive us out of this recession.”
The Economic Recovery Package includes the following provisions aimed at assisting small businesses:
• Temporary SBA Fee Relief: As a result of the financial crisis and the recession, small business lending in the SBA’s flagship loan programs – 7(a) and 504 programs – is in a freefall. The bill allocates $375 million to allow for temporary elimination of or reductions in the fees the SBA charges to lenders and borrowers in the 7(a) and 504 loan programs. When determining the amount and structure of the waivers/reductions, the bill requires the SBA to give borrowers and smaller banks priority in receiving fee relief. This funding will allow the SBA to reduce cost on as much as $13.5 billion in long-term loans, creating or retaining as many as 300,000 jobs.
• Temporary Increase in SBA Guarantee Levels: The bill allows the SBA to – on a case-by-case basis – temporarily raise the guarantee level (up to 90 percent) for 7(a) loans, other than loans made through the SBA Express program. Currently, the maximum guarantee levels are 75 percent for loans over $150,000, and 85 percent for loans of $150,000 or less. The increased guarantee will provide a higher level of protection for risk-weary small business lenders who have tightened their lending standards considerably in the wake of the credit crunch.
• Business Stabilization Program: The bill will help banks provide relatively small, short-term loans to small business borrowers experiencing immediate financial hardship. Specifically, the new program will temporarily allow the SBA to (i) fully guarantee “stabilization” loans that cannot exceed $35,000, and (ii) fully subsidize a small business borrower’s interest payment on the stabilization loan. A borrower does not have to begin repaying the stabilization loan until 12 months after receiving it, and the loan must be paid in full within 5 years.
• Microloans: The bill appropriates $30 million for the SBA’s microloan program, with $24 million dedicated to microloan technical assistance and $6 million for new microloans. The microloan program provides very small loans to qualifying micro-businesses (typically businesses with less than 10 employees) by making funds available to non-profit, community-based lenders – called intermediaries – which, in turn, make loans to eligible micro-borrowers in amounts up to $35,000. Borrowers are also provided with corresponding technical assistance to ensure that the loan proceeds are used effectively. This funding will allow the SBA to back as much as $51 million in additional microloans, creating or retaining about 10,000 jobs.
• SBA Secondary Market Stimulus: Many SBA lenders – in both the 504 and 7(a) programs – rely on a secondary market for SBA loans. These lenders sell a portion of the SBA loans they have already made to broker-dealers. The sales provide lenders with an important funding stream that allows them to extend additional SBA loans. The broker-dealers, in turn, pool the loans and sell them to investors in the secondary market. In the wake of the subprime mortgage crisis, the secondary markets for SBA loans have frozen. To thaw the 7(a) secondary market, the bill permits the SBA to make loans to broker-dealers. These loans would then be used by the broker-dealers to finance the purchase of additional SBA loans from banks. Another provision in the bill will help unfreeze the secondary market for “first lien” loans in the 504 program by guaranteeing pools of these loans, thus making them more attractive to risk-averse investors who have essentially abandoned all mortgage-backed securities. This will make it possible to unclog $2 billion to $3 billion in the 7(a) SBA secondary market, creating or retaining about 60,000 jobs.
• Small Business Venture Capital Stimulus: The bill stimulates the flow of venture capital in the SBA’s Small Business Investment Company (SBIC) program by simplifying the formula used to determine the maximum amount of SBA financing (“leverage”) available to SBICs. Among other improvements to the SBIC program, the bill also makes “transition” leverage available to commonly-controlled SBICs, which will allow successful SBICs to operate a second or third fund, while maintaining the safeguards necessary to mitigate the SBA’s risk in the investment. This will make it possible for SBIC funds to take about $2.2 billion sitting on the sidelines and invest in our most promising, fastest-growing small businesses, creating or retaining about 66,000 jobs.
• Surety Bond Stimulus: As a result of the financial crisis, surety companies are now rejecting bond applications because the applicants (usually contractors in the construction industry) cannot show that adequate financing is in place to complete the project. The bill will temporarily increase the SBA’s guarantee limit from $2 million to $5 million, and it appropriates an additional $15 million for the SBA’s surety bond revolving fund. This will make it possible to help small businesses access another $6.5 billion in Federal contracts, creating or retaining about 61,000 jobs.
• Oversight and Implementation of Stimulus Measures: In addition to the accountability board that will oversee the implementation of the stimulus package generally, the bill appropriates $10 million specifically for the SBA Inspector General’s oversight of SBA stimulus funds.
• Small business tax relief: The bill allows small businesses to carry back their 2008 losses to offset their profits from the previous five years, providing them with quick access to needed funds. It also enables small business to expense up to $250,000 for capital expenditures in 2009.