[Congressional Record Volume 143, Number 68 (Wednesday, May 21, 1997)]
[Extensions of Remarks]
[Page E1004]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           SEEKING SOLUTIONS FOR SMALL BUSINESS CREDIT NEEDS

                                 ______
                                 

                          HON. JOHN J. LAFALCE

                              of new york

                    in the house of representatives

                        Wednesday, May 21, 1997

  Mr. LaFALCE. Mr. Speaker, small businesses are again being hurt by a 
lack of loan guarantee assistance through the Small Business 
Administration. This, in turn, is directly attributable to a shortage 
of Federal moneys to adequately support the 7(a) loan guarantee 
program.
  The President's budget request for fiscal year 1997 was for $11 
billion in guarantees for SBA's 7(a) loan program.
  The House-passed appropriation bill only provided funding for $7.2 
billion.
  The Senate-passed bill provided funding for $8.4 billion.
  And the enacted bill funded $7.8 billion.
  I want to emphasize that these are loan guarantees. The Federal 
Government only spends money to pay claims in the event of default in 
repayment of these loans which are made by private lending 
institutions. For the 1997 program, we appropriated $158 million, along 
with usage of $40 million which was unspent in 1996, in order to 
support almost $8 billion in guarantees.
  It is now clear that the $8 billion in loan guarantees is not 
sufficient to meet demand, which is estimated at $9.5 to $10 billion.
  In order to prevent the program from running out of money this summer 
and being forced to close, SBA took administrative action to limit the 
size of a loan which it would guarantee. Instead of the statutory 
maximum of $750,000 in Federal exposure per borrower, a cap of $375,000 
was imposed effective May 5.
  Unfortunately, the notice of SBA's decision to impose a cap, which is 
required by law, provided lenders with a window to rush through most of 
their pending bigger loans and caused what has been termed a ``run on 
the bank.''
  As of yesterday, the amount of 7(a) loan guarantees available through 
the end of this fiscal year is less than $1.65 billion. This meager 
amount must stretch over 4 months as compared to usage of $6 billion in 
the first 8 months.
  It appears certain at this point that even though the previously 
imposed loan cap will reduce demand, it will not have sufficient 
impact. Additional action must be taken.
  At this point we cannot engage solely in an exercise in assessing 
blame and finger pointing.
  If Congress had appropriated more money as the President requested, 
we would not be confronted with this problem today.
  If SBA had reacted more quickly in acting to dampen demand and live 
within the budget enacted, less severe action would be necessary.
  The most immediate need is to craft a solution to small business 
credit needs, on a short term basis to see us through the end of this 
year and into next, but also over a longer range.
  There is a wealth of knowledge available to examine this problem and 
develop a solution. We should take full advantage of it.
  Today, I have introduced a resolution calling upon the Administrator 
of SBA to appoint a blue ribbon commission to quickly examine small 
business credit needs.
  This examination should encompass the entire concept of Federal 
programs to assist small firms in obtaining loan capital.
  Over the short term, the options are probably limited to some minor 
changes in existing standards, terms and conditions. There simply is 
not time to develop new programs. But priority must be placed on 
developing some reasonable short term solution.
  For the long term, however, there is an opportunity to expand the 
options being considered.
  The quality of small business guaranteed loans have been greatly 
improved in the past few years.
  Substantial user fees are now imposed upon those who participate in 
these programs.
  In fact, SBA's major plant and equipment program, the certified 
development company program--which is not the one involved in the 
shortage of funding--now operates without any subsidy from the Federal 
Government. It costs us nothing.
  The subsidy rate for the 7(a) program has also substantially 
improved.
  Now is perhaps the time to consider privatizing these programs. It 
may be that 7(a)'s costs can be further reduced.
  It probably is not possible to completely eliminate Federal support 
all at once. It will probably take an evolution just as in past decades 
SBA lending evolved from direct loans to loan guarantees.
  The evolution from Federal loan guarantees to privatization may 
involve a concept called a government sponsored enterprise or GSE. 
Simple described, a GSE is a privately owned entity which is not part 
of the Federal budget but which may receive financial assistance in the 
future from the Government if the need arises and the Government agrees 
to do so.
  GSE's have been used to assist housing. They have been used to assist 
students. They have been used to assist agriculture.
  This may also be a useful model to help small business. Or perhaps a 
GSE should be used to help at least some small businesses which need a 
small amount of credit enhancement--that is, a small percentage of the 
loan needs to be guaranteed--as compared to other firms which need an 
80- or 90-percent guarantee.
  I advanced the privatization concept 20 years ago. I refined it over 
the years and specifically directed it toward small business in the 
late 1980's. It did not receive the necessary support. But small 
business loans were very different then than now, and we did not 
confront the budget constraints we now do.
  A GSE is not a panacea. Establishment does involve some potential 
problems. It is, however, worthy of consideration as one of a variety 
of alternatives, and my resolution simply calls for its consideration.

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