[Congressional Record Volume 145, Number 23 (Tuesday, February 9, 1999)]
[House]
[Pages H492-H494]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  1430
          MICROLOAN PROGRAM TECHNICAL CORRECTIONS ACT OF 1999

  Mr. TALENT. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 440) to make technical corrections to the Microloan Program, 
as amended.
  The Clerk read as follows:

                                H.R. 440

       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``Microloan Program Technical 
     Corrections Act of 1999''.

     SEC. 2. TECHNICAL CORRECTIONS.

       Section 7(m) of the Small Business Act (15 U.S.C. 636(m)) 
     is amended--
       (1) by amending paragraph (7)(B) to read as follows:
       ``(B) Availability of funds.--Subject to appropriations, 
     the Administration shall ensure that at least $800,000 of new 
     loan funds are available for each State in any fiscal year. 
     All funds are to be made available subject to approval of the 
     Administration. If, at the beginning of the third quarter of 
     a fiscal year, the Administration determines that the funds 
     necessary to comply with this provision are unlikely to be 
     awarded that year, the Administration may make those funds 
     available to any State or intermediary.''; and
       (2) in paragraph (8)--
       (A) by inserting ``and providing funding to 
     intermediaries'' after ``program applicants''; and
       (B) by inserting ``and provide funding to'' after ``shall 
     select''.

     SEC. 3. LOAN LOSS RESERVE.

       Section 7(m)(3)(D) of the Small Business Act (15 U.S.C. 
     636(m)(3)(D)) is amended to read as follows:
       ``(D)(i) In general.--The Administrator shall, by 
     regulation, require each intermediary to establish a loan 
     loss reserve fund, and to maintain such reserve fund until 
     all obligations owed to the Administration under this 
     subsection are repaid.
       ``(ii) Level of loan loss reserve fund.--
       ``(I) In general.--Subject to subclause (III), the 
     Administrator shall require the loan loss reserve fund of an 
     intermediary to be maintained at a level equal to 15 percent 
     of the outstanding balance of the notes receivable owed to 
     the intermediary.
       ``(II) Review of loan loss reserve.--After the initial 5 
     years of an intermediary's participation in the program 
     authorized by this subsection, the Administrator shall, at 
     the request of the intermediary, conduct a review of the 
     annual loss rate of the intermediary. Any intermediary in 
     operation under this subsection prior to October 1, 1994, 
     that requests a reduction in its loan loss reserve shall be 
     reviewed based on the most recent 5-year period preceding the 
     request.
       ``(III) Reduction of the loan loss reserve.--Subject to the 
     requirements of subclause IV, the Administrator may reduce 
     the annual loan loss reserve requirement to reflect the 
     actual average loan loss rate for the intermediary during the 
     preceding 5-year period, except that in no case shall the 
     loan loss reserve be reduced to less than 10 percent of the 
     outstanding balance of the notes receivable owed to the 
     intermediary.
       ``(IV) Requirements.--The Administrator may reduce the 
     annual loan loss reserve requirement of an intermediary only 
     if the intermediary demonstrates to the satisfaction of the 
     Administrator that--

       ``(aa) the average annual loss rate for the intermediary 
     during the preceding 5-year period is less than 15 percent; 
     and
       ``(bb) that no other factors exist that may impair the 
     ability of the intermediary to repay all obligations owed to 
     the Administration under this subsection.''.

  The SPEAKER pro tempore (Mr. Shimkus). Pursuant to the rule, the

[[Page H493]]

gentleman from Missouri (Mr. Talent) and the gentleman from Illinois 
(Mr. Davis) each will control 20 minutes.
  The Chair recognizes the gentleman from Missouri (Mr. Talent).
  Mr. TALENT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, let me begin by thanking my colleague, the ranking 
member on the Committee on Small Business, the gentlewoman from New 
York (Ms. Velazquez), for her generous support in moving this bill, as 
well as thanking the gentleman from Illinois (Mr. Davis) for co-
managing and bringing this bill with me to the House floor.
  Mr. Speaker, the microloan program was established as a pilot program 
in 1991 and was made permanent in 1997. The program provides small 
loans, under $25,000, to the Nation's smallest entrepreneurs. These 
loans are made through intermediaries, SBA-certified and approved 
nonprofit lending and business development organizations.
  These intermediaries borrow funds from the SBA and, in turn, lend 
those funds to small businesses. In order to protect taxpayer assets, 
the intermediaries are required to maintain a loss reserve based on the 
amount of microloans they have outstanding.
  When the program was made permanent in 1997, changes were also made 
to modify the loan loss reserve for microloan intermediaries. That 
legislation specified microloan borrowers were to maintain a loss 
reserve of 15 percent of their outstanding microloans for the first 5 
years of their participation in the program. After that, intermediaries 
were to maintain a loss reserve equal to 10 percent of their 
outstanding loans or twice their loss rate, whichever was greater.
  Unfortunately, this provision was interpreted by the Small Business 
Administration to mean an amount equal to twice an intermediary's 
aggregate losses. That interpretation created an immense burden on 
microloan intermediaries. We attempted to fix that problem last year 
with statutory language similar to H.R. 440. Unfortunately, that failed 
to pass prior to Congress's adjournment.
  H.R. 440 is necessary to correct this interpretation and clearly 
establish that the loss loan reserve will be 15 percent for the first 5 
years for all intermediaries, and that intermediaries may apply for a 
reduction of that reserve to reflect their actual annual average loss 
rate, but no less than 10 percent.
  The loan loss reserve reduction is to be based on the actual annual 
average loss rate over a 5-year period. We want to make that 
legislative history absolutely clear. The committee expects that 
intermediaries will request such reviews no more than annually, and 
that such reviews will not affect the SBA's ability to conduct further 
reviews for oversight and management purposes.
  H.R. 440 also replaces the cap on the amount of microloan funds that 
can be made available to intermediaries in any one State. This cap was 
originally imposed to ensure that microloan funds would not be used 
disproportionately in those States with more aggressive microloan 
programs. As the program has matured, however, the restrictions become 
unnecessary.
  Finally, H.R. 440 will establish a floor for the availability of 
microloan funds for all States. The availability of these funds is 
subject to appropriations and the approval of the SBA. In addition, the 
committee expects any reserve established by the SBA will be held for 
no more than the first half of the fiscal year.
  Mr. Speaker, this bill will have a real impact on the very smallest 
of businesses in this country seeking start-up financing, and at the 
end of the day, that is one of our most important jobs.
  Let me again thank my colleague, the gentlewoman from New York (Ms. 
Velazquez) and her staff for their assistance in moving the measure 
before us.
  Mr. Speaker, I urge my colleagues to support H.R. 440, and I reserve 
the balance of my time.
  Mr. DAVIS of Illinois. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I rise in strong support of H.R. 440, the Microloan 
Program Technical Corrections Act, and I commend the gentleman from 
Missouri (Chairman Talent) and the ranking member, the gentlewoman from 
New York (Ms. Velazquez) for moving quickly to pass this important 
legislation.
  As a matter of fact, I would further note that it is a pleasure to 
serve on the Committee on Small Business because of the leadership 
provided by the gentleman from Missouri (Chairman Talent) and that of 
the ranking member, the gentlewoman from New York (Ms. Velazquez).
  These changes are important for small entrepreneurs because they will 
allow lenders to make more loans and increase technical assistance. In 
my district, the Seventh District of Illinois, there are many small 
businesses eager to take advantage of these resources which are being 
made available to them.
  Everyone agrees that the challenge facing most entrepreneurs is 
access to capital. However, it is often far more difficult, if not 
impossible, for many small and very small businesses to get the 
financing they need. Microborrowers are either very small, start-up, or 
growth-phased businesses which are unable to meet a lender's collateral 
or credit requirements.
  For this reason, many private lenders consider these borrowers too 
risky for loan consideration, thus leaving these businesses without the 
capital to grow and expand.
  To address this problem, the Small Business Administration launched 
the Microloan Pilot Project in 1992. This program was designed to help 
underserved, start-up, and existing small business owners that did not 
have access to financing.
  Since its beginning, the microloan program has helped countless 
businesses to start up and to grow. Today, with over 100 participating 
intermediaries, the small business microloan program is the largest 
Federal program of its kind. It has a proven track record of giving 
small businesses the support they need to succeed.
  One of the most important aspects of the microloan program is its 
ability to reach women and other minority groups. This population may 
need just a small loan to create or expand a business. Often women and 
minorities do not have the credit history or necessary capital to get a 
loan from a bank or other traditional channel. This is where the 
microloan program steps in and provides the necessary tools to help 
these business owners achieve the American dream. In fact, the 
microloan program has become a traditional funding source for women 
entrepreneurs.
  This legislation is straightforward. The first thing the Microloan 
Program Technical Corrections Act of 1999 would do is remove the State 
formula caps. The caps were put in place in order to ensure equitable 
distribution of funds, but resulted in just the opposite. By removing 
the cap, we will be ensuring that all States have access to the 
program.
  By allowing lenders with successful loan portfolios to make more 
loans and to provide additional technical assistance, today's 
legislation will only help more microenterprises grow. Providing 
additional technical assistance to businesses will enable entrepreneurs 
who are on the threshold of moving forward the opportunity to do so.
  Finally, the microloan program has proved invaluable in helping 
America's small businesses to grow. This bill will give those 
businesses in these communities access to increased resources to help 
them grow and further expand. I am indeed pleased that we are moving 
quickly to pass this crucial legislation, and that we are looking for 
ways to improve this important program.
  Mr. Speaker, I think this is indeed a tremendous piece of legislation 
that has been brought to us very early in this session. Again, I would 
commend the gentleman from Missouri (Chairman Talent) and the ranking 
member, the gentlewoman from New York (Ms. Velazquez) for the 
expeditious manner in which they have acted.
  Mr. Speaker, I have no further requests for time, and I yield back 
the balance of my time.
  Mr. TALENT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I will close by saying I appreciate very much the 
gentleman's kind words. I really should emphasize what he is saying. 
This program is very important to the smallest of our entrepreneurs, 
those just getting started. It

[[Page H494]]

many cases, these are folks who are moving off of lives in some cases 
of dependency into lives of entrepreneurship. They are the people who 
need these small loans.
  In order to make this program work we have to correct this 
misperception, as well as make some other technical corrections. So it 
is a very important bill. I thank the gentleman for his support, and I 
urge my colleagues to support H.R. 440.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Missouri (Mr. Talent) that the House suspend the rules 
and pass the bill, H.R. 440, as amended.
  The question was taken.
  Mr. TALENT. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

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