WASHINGTON, D.C. – U.S. Senate Small Business and Entrepreneurship Committee Ranking Member Olympia J. Snowe (R-ME) and Chairman John F. Kerry (D-MA) today introduced the “Small Business Lending Oversight and Program Performance Improvements Act of 2007” to measure the economic outcomes and improve the oversight of the Small Business Administration’s signature 7(a) and 504 lending programs. The legislation will ensure that the SBA will assess the quality and performance of these loan programs so that they benefit small businesses to the maximum degree possible.

“The 7(a) and 504 lending programs will not survive if we cannot prove to taxpayers that the money spent to guarantee small business loans actually produces economic vitality, opportunity, and new jobs for our nation,” said Senator Snowe. “The only way to protect these vital programs and prove their effectiveness is through oversight and concrete measurements. The legislation we are introducing today is necessary for the SBA’s lending programs to expand and reach all of the small businesses that need access to capital.”

“Access to capital remains one of the top concerns for America’s entrepreneurs, so I am pleased to work with Senator Snowe to ensure the government’s vital small business lending programs remain strong,” said Senator Kerry. “This bill will protect the integrity of the programs by establishing tangible performance measures, provide oversight transparency, and mitigate fraudulent lending. Ultimately, these improvements will get loans to the businesses that need them and provide us with details about the return on investment in these small firms.”

Based in part on recommendations made by the Government Accountability Office in a July 2007 report, Small Business Administration: Additional Measures Needed to Assess 7(a) Loan Program’s Performance, the bill would:

  • Require a report on borrowers’ economic performance. Currently, the SBA estimates job creation, but the GAO recommends further measurements to demonstrate the economic growth that companies create after securing 7(a) and 504 loans. This will help the SBA and Congress measure the return on investment;

  • Increase the transparency of lenders’ portfolio quality. The SBA’s lender monitoring system does not explain how some measurements determine a lender’s risk rating or where there are problems so that lenders can act proactively to mitigate defaults or losses. Codifying portfolio quality principals will enable all lenders to understand the standards to which they are held. This will help to protect the programs’ performance;

  • Create a 7(a) and 504 portfolio default rate that can be compared directly to commercial lenders’ default rates. At this time, the SBA does not calculate a portfolio default rate that is directly comparable to commercial lenders’ default rates, which makes it hard for Congress and the public to accurately track the programs’ performance; and

  • Require the SBA to follow cost containment and cost control practices to hold down lender oversight fees and enable banks to use their capital for lending.

In May, Kerry and Snowe passed their bipartisan legislation to expand the 7(a) and 504 loan programs out of Committee. S. 1256, the Small Business Lending Reauthorization and Improvements Act, now awaits consideration by the full Senate.