[Congressional Record Volume 145, Number 20 (Thursday, February 4, 1999)]
[Senate]
[Page S1275]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. STEVENS (for himself, Mr. Inouye, Mr. Murkowski, and Mr. 
        Akaka):
  S. 375. A bill to create a rural business lending pilot program 
within the U.S. Small Business Administration, and for other purposes; 
to the Committee on Small Business.
 Mr. STEVENS. Mr. President, I have in the past brought to the 
attention of the Senate one of the most significant economic problems 
facing Alaska--the underdevelopment of the business sector in the rural 
areas of Alaska. Today I am introducing the Rural Business Lending Act 
to help fix this problem in my state and in Hawaii. Senators Inouye, 
Murkowski, and Akaka join me as cosponsors.
  Many of my colleagues have heard me speak of Alaska's vast size, of 
our lack of a highway system, and of the problems faced by small Alaska 
communities because of their remoteness and because they are islands 
surrounded by a sea of federal land. Our economic problems are in some 
ways more like the problems of third-world countries than the problems 
of towns in the contiguous 48 states. More than 130 Alaska villages and 
communities have populations under 3,000, and almost 80 percent of 
these communities are not connected to any road or highway system. They 
can be reached only by small plane or boat. Many do not have a bank 
branch office or any other lending source.
  The nearest banks--which, even within Alaska are likely to be 
hundreds of miles away--often cannot make loans in rural communities 
due to the cost of servicing the loans, the cost of transportation, 
higher credit risks and other unknown risks, the seasonality of the 
economy, and the collateral limitations inherent to remote real estate. 
Most Alaska villages have few, if any, privately- or independently-
owned small businesses.
  The Rural Business Lending Act would attempt to help with these 
problems. The bill would create a pilot loan guarantee program in 
Alaska and Hawaii administered by the U.S. Small Business 
Administration (SBA). The pilot program is modeled after the SBA 7(a) 
program that was in effect prior to changes made in 1995. These changes 
dramatically reduced small business lending by banks and other 
financial institutions in Alaska. Among other things, the changes: (1) 
decreased the portion of a loan that SBA could guarantee under the 7(a) 
Program, from 90 percent of the loan amount down to a sliding scale of 
only up to 80 percent; and (2) increased the guarantee fee for 7(a) 
loans from 2 percent of the loan amount up to a sliding scale of 
between 2 percent and 3.875 percent. Another change was that the SBA 
discontinued servicing loans that have gone into default. This change 
is particularly detrimental in Alaska and Hawaii, because of the 
transportation costs involved in servicing a loan, and in small Alaska 
communities because it is difficult for the employee of a bank branch 
to take action against his neighbor on a loan.
  Before these changes went into effect, the SBA 7(a) lending program 
provided much of the critical financing for rural Alaska businesses. 
For instance, the SBA guaranteed 315 loans totaling $29 million with 
fiscal year 1995 funds--170 of which went to businesses in what we 
consider rural areas of Alaska (generally not on the road system). By 
comparison, the SBA guaranteed only 88 loans in Alaska--and only 48 in 
rural areas--with fiscal year 1998 funds, after the changes had gone 
into effect. The total amount of the loans between fiscal year 1995 and 
fiscal year 1998 decreased by over 60 percent, from $29 million down to 
$10 million. It appears this downward trend is continuing during the 
Fiscal Year 1999 cycle.
  Prior to the changes, the National Bank of Alaska was one of SBA's 
biggest 7(a) lending program participants, having made over 91 loans 
totaling more than $15 million during the fiscal year 1995 cycle. Three 
years later, during the fiscal year 1998 cycle, the National Bank of 
Alaska made no loans under the 7(a) program. There is no question that 
the changes have negatively affected the availability of loan funds and 
credit in rural Alaska and other rural areas.
  The bill I am introducing today is intended to make the 7(a) program 
more viable in the rural parts of Alaska and Hawaii. The Rural Business 
Lending Act would create a 3-year ``Rural Business Lending Program'' in 
the 49th and 50th states that would be similar to 7(a) Program before 
the 1995 changes. It would allow up to 90 percent of loan amounts to be 
guaranteed, cap the guarantee fee at 1 percent, require the SBA to 
service loans on which it honors a guarantee, and allow the SBA to 
waive annual loan fees (one-half of one percent of the outstanding loan 
balance under existing law) if necessary to increase lending. Loans 
under the ``Rural Business Lending Program'' would be available only in 
communities with a population of 9,000 or fewer. The program would be 
required to be administered from the SBA's Alaska and Hawaii offices, 
where the unique characteristics and needs of rural small businesses 
are more likely to be understood. The SBA would be required to report 
to Congress after two years on the effectiveness of the program so that 
consideration could be given to making it permanent or expanding it to 
other areas.
  This legislation will ensure that small businesses in rural Alaska 
and Hawaii have similar access to the national 7(a) Program that other 
small businesses have. The national 7(a) program should not provide 
opportunities only to businesses in urban settings. The changes in the 
Act are intended to revive the SBA 7(a) Program in rural parts of 
Alaska and Hawaii, creating a model that perhaps can be applied more 
broadly in the future. I look forward to working with other Senators on 
the enactment of this legislation that is so critical to small 
businesses in Alaska and Hawaii, and ultimately perhaps, to small 
businesses in rural areas throughout the United States.
                                 ______