WASHINGTON – Today Senator John Kerry (D-Mass.), Chairman of the Committee on Small Business and Entrepreneurship, introduced legislation to address the expanding credit crunch, which is now beginning to squeeze small businesses. His bill would reduce loan costs and help more entrepreneurs access the capital they need to start and grow their businesses. On Monday, the Federal Reserve released a report showing one third of U.S. banks have tightened their lending standards for small business loans. Government guaranteed loans are also down by up to 23 percent.

“The mortgage crisis that is forcing hundreds of thousands of families to sell their homes or face foreclosure is now preventing many small businesspeople from getting the financing they need to start or grow their businesses,” said Kerry. “For every $33,000 loaned, one job is created or retained. By cutting fees, we can make loans more affordable and encourage banks to extend credit to a larger number of small business owners who in turn hire workers and boost our economy.”

Kerry’s legislation will provide $150 million to cut loan fees on government-backed 7(a) loans to small businesses. The 7(a) lending program is the largest source of long-term capital to small businesses in this country. Last year, nearly 100,000 businesses received 7(a) loans, which created or retained over 624,000 American jobs. However, 7(a) loans are down 14 percent from this time last year and express loans — which are approved in weeks, not months, and therefore reflect current economic conditions more accurately — are down about 23 percent.

For loans under $150,000, the bill cuts the fee from 2 to 1 percent; between $150,000 and $700,000, the fee is cut from 3 to 2.5 percent; for loans over $700,000, Kerry’s bill cuts the fee from 3.5 percent to 3 percent; and for loans over $1 million, the bill eliminates the additional .25 percent fee cutting the fee to 3 percent. The legislation also caps the lenders’ fee at .25 percent, down from the current .55 percent. The President’s budget released last week proposes to increase the lenders’ fee from .49 to the maximum .55 percent, making the program less attractive to banks that are already looking to contain losses and costs.

Kerry’s also looking for ways to update the 504 loan program to get financing to businesses that are looking to grow. The Federal Reserve report showed that 80 percent of U.S. banks have tightened loans for commercial real estate purchases, making the 504 loan program, which helps small businesses expand their fixed assets, even more critical.

The bill will provide additional funding to leverage nearly $20 million in microloans, which proportionally benefit underserved communities, including women and minorities, more than traditional loan programs. Despite these signs that small businesses are facing a credit crunch, President Bush’s proposed budget for next year contains no funding for the 7(a) or 504 loan programs or the microloan program and raises the fees on lenders.