[Congressional Record Volume 142, Number 32 (Monday, March 11, 1996)]
[Senate]
[Pages S1682-S1683]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         SMALL BUSINESS ADMINISTRATION CORRECTIONS LEGISLATION

 Mr. KERRY. Mr. President, today I am introducing legislation 
intended to correct a problem created last October when Congress passed 
S. 895, to strengthen and reduce the cost of the Small Business 
Administration's (SBA) 7(a) Guaranteed Loan Program and the 504 
Certified Development Company Program. My bill will restore a level 
playing field in Federal export financing between small and large 
exporters and help assure small businesses do not lose export 
opportunities just because they cannot get the financing they need from 
banks.
  S. 895, developed in response to a growing demand for SBA's 7(a) loan 
guarantees, expanded the amount of loan guarantee funding available to 
small businesses by decreasing the share of the guarantee for which the 
Federal Government is responsible from the then-current 90 percent to a 
maximum of 80 percent for loans of $100,000 or less, and to a maximum 
of 75 percent for loans from $100,000 to $750,000. As a subset of the 
7(a) program, SBA's Export Working Capital Guarantee Program [EWCP] 
also had its Government loan guarantee portion adjusted downward. While 
equalizing the difference between the terms for regular 7(a) loan 
guarantees and export guarantees, this change penalized small business 
exporters vis-a-vis their larger counterparts: smaller exporters now 
receive less favorable financing terms through SBA than big exporters 
receive through the Export-Import Bank [Ex-Im Bank].
  This change comes just 1 year after the SBA and Ex-Im Bank, in 
response to a directive from the Trade Policy Coordinating Committee 
[TPCC], had harmonized their export terms to provide a consistent 90 
percent loan guarantee rate regardless of the size of the loan. The 
TPCC endorsed the harmonization to streamline the comparative strengths 
of Ex-Im Bank and SBA into a single U.S. Government program for the 
small and medium sized exporter. Through its many local offices, SBA is 
well positioned to provide assistance to small businesses at the local 
level. Ex-Im Bank, on the other hand, has only five regional offices 
and few personnel versed in the needs of small business.
  Lenders obviously choose how to allocate their resources based upon 
the likely return of one transaction versus another. So, while small 
business working capital requirements tend to be relatively small in 
dollar amount terms--for example, $25,000 to $500,000--the amount of 
expenses/overhead devoted to a small transaction is the same as it 
would be for larger transactions--for example, more than $2 million. In 
addition, banks will avoid taking foreign lending risk if coverage is 
reduced. Banking practices are different for domestic lending and 
foreign lending. Banks will include almost any current domestic 
receivable in the borrowing base of the customer eligible for 
financing, but they will not include foreign receivables because they 
are perceived to be higher risks. SBA's EWCP converts foreign 
receivables into

[[Page S1683]]

domestic receivables that can be financed. Finally, a number of 
exporters with small transactions are not considered bankable because 
they are new-to-export, having relied on family, friends, second 
mortgages and credit cards to start their businesses. SBA helps move 
them closer to becoming bankable.
  The legislation I am introducing will restore parity among small and 
large exporters in Federal export financing terms, and help assure that 
no small business loses an export sale just because the financing is 
not there. Mr. Bennett Schwartz of BayBank and who is also vice 
president of the Coalition of New England Companies for Trade, a group 
of more than 100 companies, makes a compelling case for this bill:

       The single greatest obstacle to small business exports is 
     the inability to obtain adequate financing;
       The EWCP program was initiated only on October 1, l994 and 
     it is clear that the 90 percent guarantee provides a 
     critically needed incentive for lenders to make these loans. 
     At a 75/80 percent guarantee this already difficult to obtain 
     financing will become even less attractive to banks and the 
     loans will likely not be made;
       Under the harmonization of export finance programs with the 
     Ex-Im Bank, whose Working Capital Guarantee program is not 
     changed, small businesses will be discriminated against. In 
     addition, the SBA underwriting criteria are different than 
     Ex-Im's in that SBA emphasizes transactional based finance 
     over balance sheet lending, precisely the type of financing 
     most difficult to come by for small businesses.
       The average exporting deal for small businesses ranges from 
     $30,000-$400,000. The average size of approved SBA EWCP loans 
     has been $300,000.
       Many smaller banks without International Departments will 
     participate in an SBA program because they are comfortable 
     with the Agency. The SBA focus on providing advice on 
     structuring a deal so that it meets a bank's criteria is 
     particularly effective in making this type of program work.

  The General Accounting Office also supports the principle behind this 
legislation, arguing there is a clear rationale for treating export 
guarantees differently than other 7(a) guarantees: banks that make 
export guarantees have a greater risk and lower profit than banks 
making other 7(a) loans. ECWP loans are short-term and cannot be sold 
on the secondary market, making them relatively less profitable than 
conventional 7(a) loans. SBA testified before the House Small Business 
Committee last September 7, that a 90 percent loan guarantee rate for 
ECWP loans ``will not really affect the Section 7(a) program subsidy 
rate  * * * even if the ECWP doubles in the fiscal year l996, it will 
still represent less than 1 percent of the total 7(a) loan portfolio.'' 
At the same hearing, a representative for the Bankers' Association for 
Foreign Trade argued the difference in the two guarantee rates would 
raise ``serious concerns about the future involvement by banks in this 
area of trade finance.''
  Since October 1, l994, the harmonized program has been solely 
responsible for ensuring 285.3 million dollar's worth of additional 
United States exports. In fiscal year l995, SBA approved more than 132 
transactions worth $44.3 million as compared to 77 transactions worth 
$27.4 million in fiscal year l994. While these numbers clearly 
demonstrate to me the importance of the loan guarantees to small 
business exporters, in enacting S. 895 last year, Congress requested 
SBA to evaluate the impact of the disparity in export loan guarantee 
rates. SBA surveyed lenders and borrowers throughout the United States, 
using its field offices, small business associations and the 
President's Export Council. Not surprisingly, the results of SBA's 
Impact Study,

       . . . overwhelmingly illustrate that the reduction in SBA's 
     maximum guarantee percentage has had, and will continue to 
     have, a detrimental effect on SBA's ability to expand access 
     to working capital for small business exporters. Ultimately, 
     this will likely have a negative effect on the ability of 
     small businesses to enter the global marketplace as they 
     continue to be unable to obtain the financing they critically 
     need.

  Specifically, the Impact Study found:
       Access to working capital trade finance by small businesses 
     will be severely reduced. Three-quarters of the small 
     businesses interviewed stated that the lower guarantee will 
     have an adverse effect on their ability to obtain export 
     financing.
       Many lenders will retreat from making trade finance loans 
     due to decreased risk mitigation. Over half of the banks 
     interviewed stated that they would not have made a loan under 
     the EWCP at the 75/80 percent guarantee rate.
       Small banks, in particular, will be less likely to offer 
     export finance to their customers.
       The ability of small business to compete in the global 
     marketplace will be negatively affected.

  Mr. President, small business exporters in Massachusetts tell me they 
need this legislation to help them continue to obtain critical 
financing. I am sure this is also the case for small business exporters 
across this Nation. At a time when exports are a key component of 
continued economic growth and the creation of family-wage jobs, it is 
incumbent upon Congress to do all it can to help rather than hurt 
America's small business exporters. I am pleased to have Senator 
Lautenberg join me in introducing this bill and urge my colleagues to 
support this important legislation.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1603

       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 Export 
     Enhancement Act of 1996''.

     SEC. 2. LEVEL OF PARTICIPATION IN GUARANTEED LOANS UNDER 
                   EXPORT WORKING CAPITAL PROGRAM.

       Section 7(a)(2) of the Small Business Act (15 U.S.C. 
     636(a)(2)) is amended by adding at the end the following new 
     subparagraph:
       ``(D) Participation Under Export Working Cap[ital 
     Program.--Notwithstanding subparagraph (A), in an agreement 
     to participate in a loan on a deferred basis under the Export 
     Working Capital Program established pursuant to paragraph 
     (14)(A), such participation by the Administration shall be 
     equal to the rate specified under this paragraph as in effect 
     on the day before the date of the enactment of the Small 
     Business Lending Enhancement Act of 1995.''.

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