Mr. KERRY. Mr. President, over the past several days the federal government has been called upon to bail out some of America’s largest financial companies. While I recognize that swift action must be taken to prevent the collapse of our nation’s major financial institutions, like many other Americans, I believe we also should come to the aid of our nation’s small businesses, which are also imperiled by this financial crisis.
Today the problems facing small firms and the banks that typically lend to them are not unlike those being faced by corporate America—firms simply cannot access the capital they need to keep their small businesses afloat in the wake of this economic crisis. Although the Small Business Administration’s loan programs were designed to reach these marginalized borrowers, there is ample evidence that the programs are failing to do so at this critical juncture.
Last year, the SBA’s 7(a) and 504 loan guarantee programs combined to provide over 100,000 American small businesses with essential financing, and they injected approximately $20 billion into our local businesses and communities. As a result of the financial crisis, 7(a) loans are down about 30 percent in terms of the number of loans made, and down about 11 percent in terms of dollars. Meanwhile, the number of 504 loans has decreased about 16 percent, and they are down approximately 15 percent in terms of dollars loaned for Fiscal Year 2008. But these are more than just statistics; they are stark indications that the SBA’s loan programs are not reaching enough of the small businesses that are now struggling to obtain affordable credit.
The recent drop in SBA lending paints a picture of small business borrowers and lenders caught in a vicious cycle driven by the financial crises of the past year. On the lender side of the equation, struggling banks have become so concerned with risk that they have virtually cut off conventional small business borrowing, even to well-qualified firms. On the borrower side, the banks’ extremely tight lending practices are preventing loans—SBA loans in particular—from serving small businesses that need capital to survive the current economic crisis. That is why I am introducing the Small Business Lending Market Stabilization Act of 2008—which will jump start SBA lending, helping thousands of American small businesses receive the financing they need to survive the current financial crisis.
In April, as Chairman of the Senate Committee on Small Business and Entrepreneurship, I held a hearing to learn why the SBA loan programs were not reaching small businesses that were being squeezed out of the conventional loan markets by the credit crunch. Although the Administration refused to admit it at the time, virtually every other witness at the hearing told me that the SBA’s increased fees played a significant role. The bill I have introduced today will address that problem by temporarily eliminating the fees that the SBA charges to borrowers, lenders, and “Certified Development Companies” for the 7(a) and 504 loan guarantee programs. This will immediately reduce the cost of capital for SBA borrowers. With lower monthly loan payments, more money will be placed into the hands of small business owners—money that will allow them to continue purchasing inventory and equipment. At the same time, the fee relief will also reduce the cost of lending for SBA’s partners in the private sector, allowing them to make more small business loans through the programs.
The bill also includes several provisions that will expand the universe of small businesses that can access the SBA’s loan programs. For instance, one measure will permit certain borrowers to refinance a limited amount of their preexisting debt through a new 504 loan. This adjustment will allow 504 loans to reach small business owners who want to refinance their company’s existing debt, but have been turned down by conventional lenders.
The bill also contains measures that will give lenders greater flexibility in making SBA loans. One provision would allow the SBA to use “weighted average rates” when pooling loans for sale on the secondary market, making the secondary markets for SBA loans more efficient and improving liquidity among participating banks. Another provision would provide greater flexibility by directing the SBA to give lenders at least one alternative interest rate to the Wall Street prime rate, which will help reduce the interest rate typically charged on 7(a) loans.
In short, Mr. President, the bill I am introducing today will provide much needed support for America’s small businesses, helping them break free from the vicious cycle caused by the crisis in our financial markets. I will continue to work with my colleagues on both sides of the aisle to ensure that the massive Wall Street bailout proposal we have been asked to approve contains adequate protections for taxpayers. But I also urge my colleagues to join me in supporting this bill, which will provide a lifeline to hundreds of thousands of American small businesses along Main Street.