[Congressional Record Volume 141, Number 141 (Tuesday, September 12, 1995)]
[House]
[Pages H8733-H8737]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SMALL BUSINESS CREDIT EFFICIENCY ACT OF 1995
Mrs. MEYERS of Kansas. Mr. Speaker, I move to suspend the rules and
pass the bill (H.R. 2150) to amend the Small Business Act and the Small
Business Investment Act of 1958 to reduce the cost to the Federal
Government of guaranteeing certain loans and debentures, and for other
purposes, as amended.
The Clerk read as follows:
H.R. 2150
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Credit
Efficiency Act of 1995''.
SEC. 2. FEE FOR LOAN GUARANTEES SOLD ON SECONDARY MARKET.
Section 5(g)(4)(A) of the Small Business Act (15 U.S.C.
634(g)(4)(A)) is amended by striking ``4/10 of one
percent'' and inserting ``one-half of 1 percent''.
SEC. 3. GENERAL BUSINESS LOANS.
(a) Reduced Level of Participation in Guaranteed Loans.--
Section 7(a)(2) of the
[[Page H 8734]]
Small Business Act (15 U.S.C. 636(a)(2)) is amended to read as follows:
``(2) Level of participation in guaranteed loans.--
``(A) In general.--In agreements to participate in loans on
a deferred basis under this subsection, such participation by
the Administration shall be--
``(i) equal to 80 percent of the balance of the financing
outstanding at the time of disbursement if such financing is
less than or equal to $100,000; and
``(ii) equal to 75 percent of the balance of the financing
outstanding at the time of disbursement if such financing is
greater than $100,000.
``(B) Reduced participation.--The guarantee percentage
specified by subparagraph (A) for any loan may be reduced
upon the request of the participating lender. The
Administration shall not use the percent of guarantee
requested as a criterion for establishing priorities in
approving guarantee requests.
``(C) Interest rate under preferred lenders program.--The
maximum interest rate for a loan guaranteed under the
Preferred Lenders Program shall not exceed the maximum
interest rate, as determined by the Administration, which is
made applicable to other loan guarantees under this
subsection.
``(D) Preferred lenders program defined.--In this
paragraph, the term `Preferred Lenders Program' means a
program under which a written agreement between the lender
and the Administration delegates to the lender--
``(i) complete authority to make and close loans with a
guarantee from the Administration without obtaining the prior
specific approval of the Administration; and
``(ii) authority to service and liquidate such loans.''.
``(b) Guarantee Fees.--Section 7(a)(18) of the Small
Business Act (15 U.S.C. 636(a)(18) is amended to read as
follows:
``(18) Guarantee fees.--
``(A) General fee.--For any loan or financing made under
this subsection other than a loan repayable in a period of
one year or less, the Administration shall collect a
guarantee fee equal to--
``(i) 2 percent of the gross amount of any loan guaranteed
under this subsection of an amount less than $250,000;
``(ii) 2.5 percent of the gross amount of any loan
guaranteed under this subsection of an amount equal to or
greater than $250,000 and less than $500,000; or
``(iii) 3 percent of the gross amount of any loan
guaranteed under this subsection of an amount equal to or
greater than $500,000.
Such fee shall be payable by the participating lending
institution and may be charged to the borrower.
``(B) Additional fee to offset cost.--
``(i) In general.--In addition to the guarantee fee to be
collected under subparagraph (A), the Administration shall
collect a fee for loans guaranteed under this subsection
(other than loans for which a guarantee fee may be collected
under section 5(g)(4)(A)) in an amount equal to not more than
four-tenths of 1 percent per year of the outstanding
principal portion of such loan guaranteed by the
Administration.
``(ii) Use.--Fees collected under clause (i) shall be used
solely to offset the cost (as defined by section 502(5) of
the Congressional Budget Act of 1974) of guaranteeing loans
under this subsection.
``(iii) Payment.--Fees collected under clause (i) shall be
payable by the participating lending institution and shall
not be charged to the borrower.''.
(c) Repeal of Provisions Allowing Retention of Guarantee
Fees by Lenders.--Section 7(a)(19) of the Small Business Act
(15 U.S.C. 636(a)(19)) is amended--
(1) in subparagraph (B)--
(A) by striking ``shall (i) develop'' and inserting ``shall
develop''; and
(B) by striking ``, and (ii)'' and all that follows before
the period at the end; and
(2) by striking subparagraph (C).
SEC. 4. MODIFICATION TO DEVELOPMENT COMPANY DEBENTURE
PROGRAM.
(A) Maximum Loan Amount.--Section 502(2) of the Small
Business Investment Act of 1958 (15 U.S.C. 696(2)) is amended
to read as follows:
``(2) Loans made by the Administration under this section
shall be limited to $1,250,000 for each such identifiable
small business concern.''.
(b) Fee to Offset Cost.--Section 503(b)(3) of the Small
Business Investment Act of 1958 (15 U.S.C. 697(b)(3)) is
amended by inserting before the semicolon the following:
``and includes a one-eighth of 1 percent fee which shall be
paid to the Administration and which shall be used solely to
offset the cost (as defined by section 502(5) of the
Congressional Budget Act of 1974) of guaranteeing the
debenture.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from
Kansas [Mrs. Meyers] will be recognized for 20 minutes, and the
gentleman from Illinois [Mr. Poshard] will be recognized for 20
minutes.
The Chair recognizes the gentlewoman from Kansas [Mrs. Meyers].
Mrs. MEYERS of Kansas. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise in strong support of H.R. 2150, the Small
Business Credit Efficiency Act of 1995. H.R. 2150 is a simple piece of
legislation. The purpose of the bill is to adjust the fees and
guarantee levels of the loan programs found in section 7(a) of the
Small Business Act and section 503 of the Small Business Investment Act
of 1958 thereby lowering the credit subsidy rate and the cost of both
programs.
H.R. 2150 accomplishes this through a few basic changes:
For the section 7(a) program it increases the annual fee charged to
the lenders who sell the guaranteed portion of their 7(a) loans on the
secondary market from 0.4 percent of the outstanding principal balance
of the guaranteed portion to 0.5 percent. The bill also establishes a
0.4 percent annual fee on the outstanding principal of all 7(a)
guaranteed loans that are not sold into the secondary market.
H.R. 2150 will also reduce and simplify the amount of guarantee
offered through the 7(a) program. The guarantee percentage will now be
no more than 80 percent of any loan up to $100,000 and no more than 75
percent of any loan above $100,000.
This will significantly simplify the current system where loans under
$155,000 are guaranteed up to 90 percent; loans over $155,000 are
guaranteed up to 85 percent; and loans from preferred lenders are
guaranteed at 70 percent.
Finally, H.R. 2150 increases the guarantee fees charged on guaranteed
loans. The current fee is 2 percent of the guaranteed portion of all
loans. The fees will now increase to 2 percent of the gross amount of
any loan below $250,000; 2.5 percent of any loan between $250,000 and
$500,000; and 3 percent of any loan above $500,000. H.R. 2150 also ends
the practice of allowing lenders to keep one-half of the guarantee fees
on certain loans.
In the section 504 development company program H.R. 2150 will
increase the total loan amount available from $750,000 to $1,250,000
and add a one-eighth of 1 percent fee to the cost of all loans made by
a Certified Development Company under this program. This fee is to be
passed on directly to the Small Business Administration to eliminate
the subsidy rate.
Mr. Speaker, the changes proposed in H.R. 2150 are estimated to lower
the credit subsidy rate for the 7(a) program to 1.06 percent. CBO
estimates that these changes will result in only $327 million in
outlays over the next 5 years, instead of $582 million a decrease of
$255 million. Those figures are based on appropriations that would
fully fund these programs, and in fact, the actual outlays will
probably be less.
Let me give my colleagues some more concrete figures--at the House-
passed 1996 appropriations level of $104.5 million the Small Business
Administration will be able to guarantee $9.8 billion in 7(a) loans.
This is an additional $2 billion in loan guarantees for $110.6 million
fewer than fiscal year 1995, and $85.2 million below the President's
budget request.
The changes also lower the subsidy rate on the 504 development
company program to zero. This means this program will operate without
the need for any appropriated funds. The 504 program already functions
in a nearly privatized state and the committee has decided to go the
final distance. This change represents an $8 million savings over the
1995 appropriation. So in fiscal year 1996 the 504 program will be able
to offer $2.6 billion in loan guarantees for zero appropriated dollars.
In sum, H.R. 2150 will allow us to provide $12.5 billion in loan
guarantees for small business in fiscal year 1996; $3.3 billion more in
total assistance for $118.6 million less in appropriations.
Mr. Speaker, these changes come in the face of growing demand for
small business credit assistance through the SBA's section 7(a) and
section 504 loan programs.
As the number of persons who enter our Nation's economy as small
business owners increases, the availability of credit continues to fall
short. Our committee's hearings have regularly pinpointed
overregulation of the banking industry as one of the root causes of
this shortage. However, despite the administration's attempts at
reducing and easing banking regulation the demand for the services of
the SBA's loan programs continue to rise.
Over the years there have been numerous supplemental appropriations
for the 7(a) and 504 business loan programs. The most recent occurred
in
[[Page H 8735]]
1993 when the SBA received a $175 million appropriation that nearly
doubled the 1993 appropriation for the 7(a) loan program.
However, the committee recognizes that supplemental appropriations
and liberal use of the taxpayer's dollars are things of the past.
Fiscal responsibility dictates that we reduce the credit subsidy rate
of the section 7(a) program and the section 504 program in order to
enable the Small Business Administration to meet the needs of our
Nation's small businesses and operate at a minimal cost to the
taxpayer.
Mr. Speaker, H.R. 2150 meets both those goals. I urge my colleagues
to support this bill, the small business men and women it will help,
and the fiscally responsible fashion in which it helps them.
{time} 1240
Mr. POSHARD. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise today in support of H.R. 2150, the Small Business
Credit Efficiency Act, because I believe it will allow the Small
Business Administration to better meet the loan demands of our
country's growing small business community. This bill passed the Small
Business Committee by voice vote last month, because the committee
recognizes the importance of providing small business owners and
entrepreneurs the opportunity to create jobs and spur economic growth
in many areas of America which are facing challenging and often
difficult economic times.
The SBA's 7(a) and 504 loan programs demonstrate the importance of
the SBA in providing financial assistance to our small business
community. In my congressional district, located in central and
southern Illinois, the multitude of successes these two loan programs
have had can be seen throughout many of our rural towns and local
business districts. From the construction company in Marion, IL to the
Greenhouse Nursery in Sullivan, the SBA has provided important
opportunities to hundreds of my constituents through its loan program
services.
As Congress works to balance the Federal budget, it is important we
make Government work better and smarter for the people it serves, and
that is what I believe we are doing here today. By adjusting the
guarantee levels and fees for 7 (a) and 504 loans, we make these SBA
programs available to a greater number of potential borrowers. In
addition, we reduce the amount of appropriations needed to fund SBA
loan guarantees by a total of $255 million over 2 years, while still
maintaining the attractiveness of the SBA's many loan programs to the
small business and financial communities.
In closing, I want to thank the gentlewoman from Kansas [Mrs. Meyers]
for her leadership in bringing this important legislation before the
Small Business Committee. Thanks should also go to the ranking Democrat
member, the gentleman from New York [Mr. LaFalce] for his work on this
bill. I strongly believe the changes we are making in these two
important loan programs will allow Congress and the SBA to meet the
needs of our small business owners more effectively and responsibly.
Mr. Speaker, I yield 4 minutes to the gentlewoman from North Carolina
[Mrs. Clayton].
Mrs. CLAYTON. Mr. Speaker, I rise, with some reluctance, in support
of this bill. My reluctance grows out of the fact that, because this
measure is on the Suspension Calendar, the ranking minority member, Mr.
LaFalce, will not be able to offer a perfecting amendment. His
amendment was cooperatively withdrawn to allow time for a hearing on
it, so that the markup of the bill could proceed. Just before the
recess, the full committee marked up H.R. 2150, the Small Business
Credit Efficiency Act of 1995.
At that time, Mr. LaFalce introduced an amendment that would restore
to 90 percent the amount of a guarantee on financing for 1 year or less
under the Small Business Administration's Export Working Capital
Guarantee Program. The SBA 7(a) Program is designed to provide greater
access to capital for the small business. It is the startup and
expansion for primary loan guarantee program for those small businesses
seeking commercial loans of $750,000 or less. Without the SBA loans
many smaller businesses would not have an opportunity. Minorities and
women are prime b eneficiaries of this loan guarantee program, as well
as small exporters. The program has grown over the last 5 years. For
fiscal year 1995, the SBA is expected to handle some 56,000 loans,
totaling $7.8 billion. the SBA serves as a facilitator and guarantees a
percentage of a loan a small business might arrange with a commercial
lending insitution.
The bill, H.R. 2150, is designed to increase the leverage of
Government dollars against private dollars and to reduce the subsidy
rate for the 7(a) program to approximately 1 percent. This is
accomplished in several ways, by increasing the fees for loans sold; by
reducing the guarantee on loans; by changing the guarantee fee on
loans; by repealing the provision that allows lenders to retain half
the fee on small and rural loans; and by other methods. This bill is
important, and I support it. But, I also supported the LaFalce
amendment because I believe it was consistent with the thrust and
spirit of H.R. 2150, while at the same time insuring that the goals of
the 7(a) program are met. The LaFalce amendment was about a policy with
which financial institutions, the Government and participants alike
have become familiar and support.
Considerable resources have been committed over the past year by both
SBA and the Ex-Im Bank in an effort to make the program work. Much of
that effort will be lost with an abrupt, unnecessary change at this
point. The Export Working Capital Guarantee Program is vital to women,
minorities including small exporters. We should keep it working.
Nonetheless, Mr. Speaker, I urge my colleagues to support this bill.
Mr. POSHARD. Mr. Speaker, I yield 4 minutes to the gentleman from
Texas [Mr. Bentsen].
(Mr. BENTSEN asked and was given permission to revise and extend his
remarks.)
Mr. BENTSEN. Mr. Speaker, I rise in strong support of this bill, and
I want to thank Chairman Meyers and ranking member LaFalce for their
work in drafting this legislation. This bill will help meet the growing
demand for small business capital, while reducing the cost to the
taxpayers.
Since 1992, the demand for the Small Business Administrations 7(a)
and 504 Loan Guaranty Programs has increased considerably, and the SBA
has experienced difficulty in meeting this demand. The SBA requested
that legislation be enacted to decrease the credit subsidy rate of the
7(a) Loan Guaranty Program, and the 504 Equipment Lease Program. The
Small Business Committee has responded quickly by drafting the bill we
have before us today.
The legislation will reduce the taxpayer subsidy necessary to fund
the loan loss reserve by $253 million in both fiscal years 1996 and
1997. Rather than rely on annual appropriations, the 7(a) and the 504
Loan Guaranty Programs will generate income from lender and borrower
fees similar to the private market.
This will eliminate the chronic quarterly funding shortfalls that
have plagued the programs in recent years, particularly the 7(a)
program. This bill adjusts the guaranty levels and fees of the 7(a) and
504 Loan Programs in order to reduce the SBA's loan subsidy rate.
This is an important first step in restructuring the SBA Loan
Guaranty Program to increase the pool of capital available for small
business. By ultimately eliminating the taxpayer subsidy and making
these programs self-sufficient, we should also be able to increase that
pool and thus capital infusion into America's small businesses. This
legislation will result in an increase in the amount guaranty, and thus
capital.
I urge the committee to raise and eventually lift the loan guaranty
cap once it can be determined that the programs are truly self
financing and creditworthy.
This transformation would result in a fannie-mae-like small business
guaranty entity resulting in an increased secondary market, and thus
greater capital, allowing more businesses to grow and create new jobs.
What the 7(a) and 504 programs are about is not the lending of
capital, but the lending of credit in order to raise capital for those
companies which cannot otherwise obtain such credit or afford the cost
due to size. This is a good
[[Page H 8736]]
program because it provides for a hand up, not a hand out.
By removing the taxpayer subsidy, providing for self generating loan
loss reserve with strong creditworthiness, and lifting the cap we can
safely expand the pool of capital. I pledge to work with my chair, Mrs.
Meyers, and ranking member, Mr. LaFalce, to further address this issue
in the SBA reauthorization bill and put us on the path toward a
privitized, secondary market corporation to raise capital to fund the
growth of America's small businesses.
Mrs. MEYERS of Kansas. Mr. Speaker, I yield such time as he may
consume to the gentleman from Massachusetts [Mr. Torkildsen], who is
chairman of the Subcommittee on Government Programs of the Committee on
Small Business.
Mr. TORKILDSEN. Mr. Speaker, I thank the gentlewoman from Kansas
[Mrs. Meyers] for yielding this time to me. I want to applaud the
effort of the gentlewoman from Kansas, the chairman of the full
committee, for the great work she has done in getting this bill to the
floor today.
Mr. Speaker, we are looking at reauthorizing the 7(a) program, and
many people will understand the importance of it, but, just to
reiterate, the 7(a) program is the principal, certainly not the only,
but the principal, lending program, or guarantee program, of the Small
Business Administration. This year, because we are looking at the very
important objective of balancing the budget, we have to look at all
areas for reducing spending. Under the leadership of the gentlewoman
from Kansas [Mrs. Meyers] we are going to see the subsidy rate reduced
from 2.73 percent to 1.06, a very substantial reduction, and, because
of that, we are going to see an additional $2 billion being lent,
although the amount that taxpayers are going to contribute to this is
going to be less than half what it is right now. That is a very
substantial savings for the taxpayers. It is also a very substantial
increase in loans that are going to be made.
Because of this revised 7(a) program, another issue that was brought
up was the nature of whether or not to change the guaranteed percentage
for the Exim, for foreign assistance or export loans. Currently that is
90 percent. Under this bill that will be reduced to 75 percent and the
reason for loans over $100,000. And the reason for that is we wanted
some consistency. Under the old program, depending on what one used
their loan program for, they might have a different guarantee
percentage than over a different loan. We thought that was unfair. We
thought that individuals who are seeking to create jobs in the United
States should be able to see a consistent guarantee percentage whether
they use that loan for exports or for other purposes that are going to
create jobs in the United States. Because of that consistency, and also
because of that slight reduction in the amount of loan being guaranteed
through, we are able to offer more loans to more people and, again, at
less cost to the taxpayers.
So, Mr. Speaker, this bill, I think, is a win-win situation. It is a
win for Americans as taxpayers. It is a win for Americans as people who
want to work and create jobs. So, I hope the bill is suspended, the
rules are suspended, and the bill is passed. It is a terrific bill, and
it deserved the support of Members.
Mr. POSHARD. Mr. Speaker, I yield such time as he may consume to the
gentleman from New York [Mr. LaFalce], the ranking Democrat member of
the Committee on Small Business.
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Mr. Speaker, I rise in support of this legislation, the
Small Business Credit Efficiency Act of 1995, and I ask unanimous
consent to revise and extend my remarks.
Mr. Speaker, this legislation addresses a very important need--to
stretch very few Federal dollars being provided to the Small Business
Administration, or SBA, to carry out the loan guarantee programs it
administers.
SBA's budget in the current fiscal year apparently will be sufficient
to permit the Agency to meet loan requests for both 7(a) loan
guarantees and for development company financings during the remainder
of this month. Previously, we thought the programs would run out of
funding before the end of the year, however, the Agency has
administratively reduced 7(a) loan eligibility by capping the maximum
amount of a loan which the Agency will guarantee by less than one-half
of the statutory amount and, more recently, by prohibiting the use of
loan proceeds to repay existing indebtedness. These actions have
reduced demand substantially.
This bill would stretch the reduced amount of funding for the 7(a)
program beginning in fiscal year 1996 by reducing the cost of
delivering the financial assistance. This would be done by reducing the
percentage of loss which the SBA would agree to pay in the event of
default on a 7(a) loan, and also by charging more fees to the borrower
and to the lender.
I do not favor either of these changes. I believe that these changes
will result in some small firms being unable to obtain financing. I
also believe that the added cost of debt service on new borrowers may
cause some of them to default and lose their businesses and their
savings.
But, under the budget levels Congress has adopted, we do not have any
choice.
The bill also slightly stretches funding for the 504 or development
company loan program by slightly increasing the fees. These increases
are minimal, however, and most importantly will make the program self
supporting.
We cannot assert this about the changes being proposed for 7(a)
loans. We have a very difficult decision to make. Either we can
increase fees and decrease Federal reimbursements, or we can continue
the current program and only be able to approve some 30 percent of the
loan applications we receive.
Thus, with reluctance, I support this bill, including its provisions
which substantially increase fees under the 7(a) program, while at the
same time reducing the Government guarantee.
I must point out, however, one change which I believe is a serious
mistake. The bill reduces the maximum Government guarantee to between
75 and 80 percent, depending upon the size of the loan. I accept the
necessity to do this except as to working capital loans for export
purposes. I believe these loans need a 90 percent guarantee, and we
could provide it at minimal cost.
SBA has historically offered loan programs to finance exports, but
the programs have been little used. Several years ago, SBA and the
Export-Import Bank decided to rework their loan programs to make them
more useful.
They did so and only last year Congress approved this agreement and
statutorily authorized SBA to issue guarantees for 90 percent of the
loan amount, whereas other loans would be made at slightly lower rates.
I would note that there was no dissent to this proposal. In fact, the
Members applauded it as it would encourage exports.
As a result, beginning with the start of this fiscal year, SBA began
guaranteeing up to $750,000 at 90 percent and Eximbank began providing
90 percent guarantees on larger amounts.
The results have been promising. Even though the year is not over,
SBA has already approved 132 export working capital loans worth $44.3
million, an amount double last year's level.
I believe that it is a bad mistake to remove the Federal incentive,
that is, the existing higher guarantee rate, for companies needing to
finance export contracts.
Last week the Small Business Committee held a hearing on this precise
question. The witnesses were unanimous in stressing the benefits and
advisability of continuing these export loans at the 90 percent rate.
But the bill takes the opposite approach and provides no exception
for export loans. I believe this is a serious mistake and we will come
to realize this when program usage seriously declines, along with a
concomitant decline in exporting by small business.
Nonetheless, I support this bill as being the best we can do under
the circumstances. I hope that we will soon recognize that we can and
must do more to support small business, and that this anticipated
recognition will result in a change in our legislative priorities.
{time} 1300
Mrs. MEYERS of Kansas. Mr. Speaker, I yield myself 1 minute.
[[Page H 8737]]
Mr. Speaker, I would just like to say in response to the gentleman
from New York [Mr. LaFalce] that I have appreciated very much the
cooperation of the minority on this bill, and particularly of the
gentleman from New York [Mr. LaFalce] and the gentleman from Illinois
[Mr. Poshard].
Mr. Speaker, I philosophically do not think the Government should
guarantee small business loans as high as 90 percent, but I did not
want to make that determination in committee. We did have a hearing on
this, with two of our subcommittees meeting together, and there was not
a consensus in there that we should depart from the 80 percent and 75
percent that we have in the bill. So I am very, very pleased. I am
sorry about the concern the gentleman expressed, but I am very pleased
for his support for the bill.
general leave
Mrs. MEYERS of Kansas. Mr. Speaker, I ask unanimous consent that all
Members may have 5 legislative days within which to revise and extend
their remarks on H.R. 2150, as amended.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from Kansas?
There was no objection.
Mr. POSHARD. Mr. Speaker, I have no further requests for time, and I
yield back the balance of my time.
Mrs. MEYERS of Kansas. Mr. Speaker, I have no further requests for
time, and I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Shays). The question is on the motion
offered by the gentlewoman from Kansas [Mrs. Meyers] that the House
suspend the rules and pass the bill, H.R. 2150, as amended.
The question was taken.
Mr. POSHARD. Mr. Speaker, I object to the vote on the ground that a
quorum is not present and make the point of order that a quorum is not
present.
The SPEAKER pro tempore. Pursuant to clause 5, rule I, and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
The point of no quorum is considered withdrawn.
____________________