[Congressional Record Volume 148, Number 103 (Thursday, July 25, 2002)]
[Extensions of Remarks]
[Page E1354]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


 INTRODUCTION OF THE PREMIER CERTIFIED LENDERS PROGRAM IMPROVEMENT ACT 
                                OF 2002

                                 ______
                                 

                         HON. JOHN T. DOOLITTLE

                             of california

                    in the house of representatives

                        Wednesday, July 24, 2002

  Mr. DOOLITTLE. Mr. Speaker, I rise today to introduce the Premier 
Certified Lenders Program Improvement Act of 2002. This legislation 
makes a small but very significant change in the PCL program that will 
benefit hundreds of small businesses around the country without 
imposing any new burden on the Federal Government or U.S. Treasury.
  As my colleagues no doubt recognize, small businesses are the 
backbone of our nation. Indeed, Dr. Lloyd Blanchard of the Small 
Business Administration (SBA) testified recently before Congress, 
``Today, almost a quarter of American households are either starting a 
business, own a business, or investing in someone else's business.'' 
The United States economy depends on entrepreneurs whose spirit results 
in the creation of both new businesses and new jobs.
  To continue the economic growth we are experiencing today, the 
Government should encourage small business development both by 
providing incentives for entrepreneurs and by removing regulatory 
hurdles. One successful example of Government encouragement of small 
business is the Premier Certified Lenders Program (PCLP). The PCLP, 
established in 1997, allows a participating Certified Development 
Company (CDC) the expanded authority to review and approve SBA 504 Loan 
requests and to foreclose, litigate, and liquidate SBA 504 Loans made 
under the Program. By taking on this authority, the private sector is 
able to stretch limited federal resources in order to help more small 
businesses.
  To participate in the PCLP, however, a CDC is required to deposit one 
percent of each SBA 504 Debenture issued under the PCLP into a loss 
reserve account. This deposit remains in the loss reserve account until 
the PCLP Debenture is fully paid or until the SBA suffers a loss. The 
loss reserve account is designed to cover ten percent of any loss 
incurred by SBA as a result of a default.
  The loss reserve account was made a part of the PCLP legislation to 
address the concern that a participating CDC would not have any 
perceived ``risk'' associated with its expanded authority under the 
Program. However, the percentages used in figuring the loss reserve 
accounts--the ten percent to cover any loss and the one percent of 
every Debenture as contribution--were determined arbitrarily and are 
not based on any historical loss record or risk analysis. The one 
percent contribution is the most egregious; the full deposit must 
remain in the loss reserve account even as the loan is paid down over 
its twenty year term and there is no accounting for the historical 
reduction of risk as a loan matures.
  As a result of these arbitrary requirements of the PCLP, many CDCs 
have decided not to participate in the PCL Program. As for those who 
are participating, some companies have accumulated large loss reserve 
accounts which are far in excess of any amounts that would ever be 
realistically used to insure payment of their loss obligation to SBA. 
The long term retention of these excess reserve funds hinders 
participating CDCs from reaching their full potential to foster 
economic development, create job opportunities, and stimulate growth, 
expansion, and modernization of small businesses.
  The legislation I am introducing today will improve the Premier 
Certified Lenders Program by giving participating CDCs greater 
flexibility. Specifically, my legislation amends the Premier Certified 
Lenders Program to allow willing CDCs to establish ``risk-based'' loss 
reserve accounts that are sufficient to protect the Government and 
taxpayers from default, but that do not contain excessive amounts of 
capital that would be better dedicated to helping additional small 
businesses.
  Mr. Speaker, maintaining a risk-based reserve is just common sense. 
Other industries, such as the banking industry, have already moved from 
a ``loan-by-loan'' reserve to a ``pool'' reserve to cover their 
exposure.
  Under my legislation, a participating CDC will be able to establish a 
risk-based reserve only if it: (1) proves itself to be an established 
PCL (minimum of $25,000 in its loss reserve account); (2) freely elects 
to develop such a reserve; (3) obtains quarterly approval from a third-
party auditor that its loss reserve is sufficient to cover its risk of 
default; and (4) receives annual approval from the SBA. These 
requirements will ensure that participating CDCs are accountable and 
that U.S. taxpayers are protected.
  I hope my colleagues will take an opportunity to review this 
legislation to improve the Premier Certified Lenders Program. I look 
forward to working with them and the Small Business Committee, chaired 
by my friend, Don Manzullo, to encourage the creation and expansion of 
more small businesses across our nation.

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