[Congressional Record Volume 149, Number 94 (Tuesday, June 24, 2003)]
[House]
[Pages H5724-H5727]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PREMIER CERTIFIED LENDERS PROGRAM IMPROVEMENT ACT OF 2003
Mr. MANZULLO. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 923) to amend the Small Business Investment Act of 1958 to
allow certain premier certified lenders to elect to maintain an
alternative loss reserve, as amended.
The Clerk read as follows:
H.R. 923
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 ``Premier Certified Lenders
Program Improvement Act of 2003''.
SEC. 2. LOSS RESERVES OF PREMIER CERTIFIED LENDERS
TEMPORARILY DETERMINED ON THE BASIS OF
OUTSTANDING BALANCE OF DEBENTURES.
Paragraph (6) of section 508(c) of the Small Business
Investment Act of 1958 (15 U.S.C. 697e(c)) is amended--
(1) by striking ``The Administration'' and inserting the
following:
``(A) In general.--The Administration''; and
(2) by adding at the end the following new subparagraph:
``(B) Temporary reduction based on outstanding balance.--
Notwithstanding subparagraph (A), during the 2-year period
beginning on the date that is 90 days after the date of the
enactment of this subparagraph, the Administration shall
allow the certified development company to withdraw from the
loss reserve such amounts as are in excess of 1 percent of
the aggregate outstanding balances of debentures to which
such loss reserve relates. The preceding sentence shall not
apply with respect to any debenture before 100 percent of the
contribution described in paragraph (4) with respect to such
debenture has been made.''.
SEC. 3. ALTERNATIVE LOSS RESERVE PILOT PROGRAM FOR CERTAIN
PREMIER CERTIFIED LENDERS.
(a) In General.--Subsection (c) of section 508 of the Small
Business Investment Act of 1958 (15 U.S.C. 697e) is amended
by adding at the end the following new paragraphs:
``(7) Alternative loss reserve.--
``(A) Election.--With respect to any eligible calendar
quarter, any qualified high loss reserve PCL may elect to
have the requirements of this paragraph apply in lieu of the
requirements of paragraphs (2) and (4) for such quarter.
``(B) Contributions.--
``(i) Ordinary rules inapplicable.--Except as provided
under clause (ii) and paragraph (5), a qualified high loss
reserve PCL that makes the election described in subparagraph
(A) with respect to a calendar quarter shall not be required
to make contributions to its loss reserve during such
quarter.
``(ii) Based on loss.--A qualified high loss reserve PCL
that makes the election described in subparagraph (A) with
respect to any calendar quarter shall, before the last day of
such quarter, make such contributions to its loss reserve as
are necessary to ensure that the amount of the loss reserve
of the PCL is--
``(I) not less than $100,000; and
``(II) sufficient, as determined by a qualified independent
auditor, for the PCL to meet its obligations to protect the
Federal Government from risk of loss.
``(iii) Certification.--Before the end of any calendar
quarter for which an election is in effect under subparagraph
(A), the head of the PCL shall submit to the Administrator a
certification that the loss reserve of the PCL is sufficient
to meet such PCL's obligation to protect the Federal
Government from risk of loss. Such certification shall be in
such form and submitted in such manner as the Administrator
may require and shall be signed by the head of such PCL and
the auditor making the determination under clause (ii)(II).
``(C) Disbursements.--
``(i) Ordinary rule inapplicable.--Paragraph (6) shall not
apply with respect to any qualified high loss reserve PCL for
any calendar quarter for which an election is in effect under
subparagraph (A).
``(ii) Excess funds.--At the end of each calendar quarter
for which an election is in effect under subparagraph (A),
the Administration shall allow the qualified high loss
reserve PCL to withdraw from its loss reserve the excess of--
``(I) the amount of the loss reserve, over
``(II) the greater of $100,000 or the amount which is
determined under subparagraph (B)(ii) to be sufficient to
meet the PCL's obligation to protect the Federal Government
from risk of loss.
``(D) Recontribution.--If the requirements of this
paragraph apply to a qualified high loss reserve PCL for any
calendar quarter and cease to apply to such PCL for any
subsequent calendar quarter, such PCL shall make a
contribution to its loss reserve in such amount as the
Administrator may determine provided that such amount does
not exceed the amount which would result in the total amount
in the loss reserve being equal to the amount which would
have been in such loss reserve had this paragraph never
applied to such PCL. The Administrator may require that such
payment be made as a single payment or as a series of
payments.
``(E) Risk management.--If a qualified high loss reserve
PCL fails to meet the requirement of subparagraph (F)(iii)
during any period for which an election is in effect under
subparagraph (A) and such failure continues for 180 days, the
requirements of paragraphs (2), (4), and (6) shall apply to
such PCL as of the end of such 180-day period and such PCL
shall make the contribution to its loss reserve described in
subparagraph (D). The Administrator may waive the
requirements of this subparagraph.
``(F) Qualified high loss reserve pcl.--The term `qualified
high loss reserve PCL' means, with respect to any calendar
year, any premier certified lender designated by the
Administrator as a qualified high loss reserve PCL for
such year. The Administrator shall not designate a company
under the preceding sentence unless the Administrator
determines that--
``(i) the amount of the loss reserve of the company is not
less than $100,000;
``(ii) the company has established and is utilizing an
appropriate and effective process for analyzing the risk of
loss associated with its portfolio of PCLP loans and for
grading each PCLP loan made by the company on the basis of
the risk of loss associated with such loan; and
``(iii) the company meets or exceeds 4 or more of the
specified risk management benchmarks as of the most recent
assessment by the Administration or the Administration has
issued a waiver with respect to the requirement of this
clause.
``(G) Specified risk management benchmarks.--For purposes
of this paragraph, the term `specified risk management
benchmarks' means the following rates, as determined by the
Administrator:
``(i) Currency rate.
``(ii) Delinquency rate.
``(iii) Default rate.
``(iv) Liquidation rate.
``(v) Loss rate.
``(H) Qualified independent auditor.--For purpose of this
paragraph, the term `qualified independent auditor' means any
auditor who--
``(i) is compensated by the qualified high loss reserve
PCL;
``(ii) is independent of such PCL; and
``(iii) has been approved by the Administrator during the
preceding year.
``(I) PCLP loan.--For purposes of this paragraph, the term
`PCLP loan' means any loan guaranteed under this section.
``(J) Eligible calendar quarter.--For purposes of this
paragraph, the term `eligible calendar quarter' means--
``(i) the first calendar quarter that begins after the end
of the 90-day period beginning with the date of the enactment
of this paragraph; and
``(ii) the 7 succeeding calendar quarters.
``(K) Calendar quarter.--For purposes of this paragraph,
the term `calendar quarter' means--
``(i) the period which begins on January 1 and ends on
March 31 of each year;
``(ii) the period which begins on April 1 and ends on June
30 of each year;
``(iii) the period which begins on July 1 and ends on
September 30 of each year; and
``(iv) the period which begins on October 1 and ends on
December 31 of each year.
``(L) Regulations.--Not later than 45 days after the date
of the enactment of this paragraph, the Administrator shall
publish in the Federal Register and transmit to the Congress
regulations to carry out this paragraph. Such regulations
shall include provisions relating to--
``(i) the approval of auditors under subparagraph (H); and
``(ii) the designation of qualified high loss reserve PCLs
under subparagraph (F), including the determination of
whether a process for analyzing risk of loss is appropriate
and effective for purposes of subparagraph (F)(ii).
``(8) Bureau of pclp oversight.--
``(A) Establishment.--There is hereby established in the
Small Business Administration a bureau to be known as the
Bureau of PCLP Oversight.
``(B) Purpose.--The Bureau of PCLP Oversight shall carry
out such functions of the Administration under this
subsection as the Administrator may designate.
``(C) Deadline.--Not later than 90 days after the date of
the enactment of this Act--
``(i) the Administrator shall ensure that the Bureau of
PCLP Oversight is prepared to carry out any functions
designated under subparagraph (B), and
``(ii) the Office of the Inspector General of the
Administration shall report to the Congress on the
preparedness of the Bureau of PCLP Oversight to carry out
such functions.''.
(b) Increased Reimbursement for Losses Related to
Debentures Issued During Election Period.--Subparagraph (C)
of section 508(b)(2) of the Small Business Investment Act of
1958 (15 U.S.C. 697e(b)(2)) is amended by inserting ``(15
percent in the case of any such loss attributable to a
debenture issued by the company during any period for which
an election is in effect under subsection (c)(7) for such
company)'' before ``; and''.
(c) Conforming Amendments.--
(1) Subparagraph (D) of section 508(b)(2) of the Small
Business Investment Act of 1958 (15 U.S.C. 697e(b)(2)) is
amended by striking ``subsection (c)(2)'' and inserting
``subsection (c)''.
(2) Paragraph (5) of section 508(c) of the Small Business
Investment Act of 1958 (15 U.S.C. 697e(c)) is amended by
striking ``10 percent''.
(d) Study and Report.--
(1) In general.--The Administrator shall enter into a
contract with a Federal agency experienced in community
development lending and financial regulation or with a member
of the Federal Financial Institutions Examinations Council to
study and prepare a report regarding--
(A) the extent to which statutory requirements have caused
overcapitalization in the loss reserves maintained by
certified development companies participating in the Premier
Certified
[[Page H5725]]
Lenders Program established under section 508 of the Small
Business Investment Act of 1958 (15 U.S.C. 697e); and
(B) alternatives for establishing and maintaining loss
reserves that are sufficient to protect the Federal
Government from the risk of loss associated with loans
guaranteed under such Program.
(2) Transmission of report.--The report described in
paragraph (1) shall be transmitted to the Committee on Small
Business of the House of Representatives and the Committee on
Small Business and Entrepreneurship of the Senate not later
than 90 days after the date of the enactment of this Act.
(3) Limitation.--The amount of the contract described in
paragraph (1) shall not exceed $75,000.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Illinois (Mr. Manzullo) and the gentlewoman from the Virgin Islands
(Mrs. Christensen) each will control 20 minutes.
The Chair recognizes the gentleman from Illinois (Mr. Manzullo).
General Leave
Mr. MANZULLO. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days within which to revise and extend their
remarks and include extraneous material on this legislation.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Illinois?
There was no objection.
Mr. MANZULLO. Mr. Speaker, I yield myself such time as I may consume.
The SBA's 504 Certified Development Company program provides small
businesses with long-term, fixed-rate financing for the purchase of
fixed assets such as land, buildings and equipment for business
expansion purposes. The loans are made by CDCs, usually nonprofit
corporations organized to contribute to the economic development of a
particular community or region. The entire 504 program runs totally on
user fees charged to small business borrowers. It does not receive an
annual appropriation.
SBA has a Premier Certified Lender program that gives discretion to
certain qualified CDCs to approve 504 loans subject to the borrower
being eligible and the available loan authority. In return for this
lower regulatory oversight, these premier CDCs must set aside more
money in order to cover potentially bad loans than regular CDCs. Some
premier CDCs believe that this amount of reserve is well beyond what is
prudently required.
My good friend and colleague, the gentleman from California (Mr.
Doolittle), introduced H.R. 923 for the purpose of allowing premier
CDCs to take a cue from the private sector by using a risk-based
management approach to calculate the loan loss reserve requirements. I
agree with this approach subject to certain conditions to protect the
taxpayer and to ensure that no unintended consequences result from this
change in policy such as higher loan fees. Our staffs have met to
develop an acceptable compromise which unanimously passed the committee
last month. I am pleased to present it to my colleagues before the full
House today.
This bipartisan compromise creates a 2-year pilot program that
permits qualified premier CDCs to use a risk-based approach to
calculate their loan loss reserve requirements. In order to ensure that
premier CDCs' loan loss reserves are sufficient to protect the
taxpayer, the compromise establishes a Bureau of PCLP oversight within
the Office of Lender Oversight at SBA. For those premier CDCs not in
the new pilot program, they can withdraw from their loss such amounts
that are in excess of 1 percent of their total outstanding loan
balances. Finally, this compromise provides for a study to evaluate
alternative loan loss reserve approaches.
H.R. 923 is about providing more liquidity and capital into the hands
of small businesses without any additional cost to the taxpayer. I urge
my colleagues to support H.R. 923.
Mr. Speaker, I reserve the balance of my time.
Mrs. CHRISTENSEN. Mr. Speaker, I yield myself such time as I might
consume.
Mr. Speaker, today I rise in strong support of H.R. 923. This
legislation is among the first steps that Congress will take this year
to ensure that the Small Business Administration continues to serve the
needs of our country's small businesses. I would like to thank the
gentleman from California (Mr. Doolittle) for bringing this important
bill to the Committee on Small Business's attention.
This legislation will allow certified development companies to make
more loans to small businesses while safeguarding the interests of our
taxpayers. This is good for the government and good for small business,
the driver of this Nation's economy.
Even though access to capital is access to opportunity for small
businesses, many find it difficult to get funding, especially given the
current lending environment. The SBA's lending program addresses this
by providing a vital stream of funding to small businesses. Last year,
these programs supplied $21 billion in capital, accounting for 40
percent of all long-term small business lending to this country's
entrepreneurs.
Among SBA's loan programs, the 504 program provides the best value to
taxpayers because it is completely self-funded. While the 504 program
requires no funding, it contributes substantially to the economic
growth of our communities. Given the weak state of our economy, the 504
program is especially important now because it promotes investment
where we need it most, in the small business sector.
Yet capital remained elusive to many small businesses because the
SBA, in many cases, took too long to make these loans and the process
was too complicated. Since the SBA processing time for 504 applications
can frequently approach 30 days, borrowers and lenders were deterred
from participating.
In response to this, Congress created the Premier Certified Lender
program. Through this public-private partnership, certified development
companies are permitted to process their 504 loans without SBA
approval. In exchange for this autonomy, SBA requires the certified
development companies to assume responsibility for some of the losses
associated with the loans they make.
While the Premier Certified Lender program addresses one problem, it
created another by requiring the certified development companies to
hold loan loss reserves in excess of amounts necessary to protect the
government. These excess funds could serve a much better purpose, like
being used to make loans for small business, the number one job creator
in the United States, instead of sitting in a ledger helping no one at
all.
To address these issues, today we are creating a pilot program that
will permit the certified development companies to maintain loan loss
reserves sufficient to protect the government and to draw out those
amounts that are held in excess of such purposes. In order to oversee
this new program, we are creating a new bureau within SBA.
By creating a system that frees up these funds, certified development
companies will then be able to make more loans to small businesses,
which is exactly what this Nation needs in a time of such economic
uncertainty. Economic recovery is only within reach if small businesses
are able to start up and grow, and this is impossible without capital.
H.R. 923 takes the important first steps to modernize the 504 program
and, in doing so, increases small businesses' ability to secure much-
needed capital.
Mr. Speaker, I urge the adoption of this legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. MANZULLO. Mr. Speaker, I yield 5 minutes to the gentleman from
California (Mr. Doolittle), my good friend and colleague, the author of
the bill.
Mr. DOOLITTLE. Mr. Speaker, I thank the gentleman from Illinois (Mr.
Manzullo) and the gentlewoman from the Virgin Islands (Mrs.
Christensen) for their remarks. I very much appreciate the support that
they have given me on this bill and the cooperation that we have had
from their staffs. I would like to acknowledge the gentlewoman from New
York (Ms. Velazquez), the ranking member, as well.
Indeed, the explanation for what this bill does has been clearly
articulated by both our previous speakers and so I will choose not to
repeat that, Mr. Speaker; but I have a statement which I will submit
for the Record.
{time} 1045
I feel that this bill, as was explained by our previous speakers,
will actually
[[Page H5726]]
do something to help stimulate the economy. The Premier Certified
Lenders Program is an excellent program. It has been unnecessarily tied
down by the problem with the requirements about the loan loss reserves.
This bill, as was explained, creates a risk-based approach to loan loss
reserves with sufficient safeguards and monitoring to make sure that
everything is going along as we would wish it to.
In the process, however, a tremendous amount of funds will be freed
up that will be used to make loans to small businesses, and as we know,
as this process unfolds, that will result in the employment of more
people and the generation of more capital and will trigger, indeed, the
very process that we need to have happen in order to make this a more
vibrant and stronger economy.
Mr. Speaker, I rise today in support of H.R. 923, the Premier
Certified Lenders Program Improvement Act, legislation I introduced in
February.
Over the past few years, I have had an opportunity to learn of the
outstanding work that certified development companies are doing across
the county and in my district, in particular. CDCs participating in the
Premier Certified Lenders Program are providing thousands of loans to
small businesses and helping these businesses to create jobs and
wealth.
As my colleagues know, small businesses are the economic backbone of
our Nation. Nearly one in four American households are either starting
a business, presently owning a a business, or investing in someone
else's business. Our economy depends on entrepreneurs whose spirit
result in the creation of both new businesses and new jobs.
I think the best policy our government can pursue to help small
businesses in this country is to get out of their way. Unshackle the
American spirit from high taxes and burdensome regulations, Mr.
Speaker, and we shall witness tremendous job creation and economic
growth. If the government seeks to help small businesses, it should
remove regulatory hurdles and provide incentives for entrepreneurs.
One successful example of government encouragement of small business
expansion is the Premier Certified Lenders Program PCLP. This program
was established in 1997 and 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.
Unfortunately, current law requires premier certified lenders to
deposit and maintain 1 percent of each debenture issued in a loan loss
reserve fund, from which they are to reimburse the Small Business
Administration, SBA, for 10 percent of any loss. Premier certified
lenders must maintain that deposit throughout the life of the loan,
even as the loan matures, the debenture is paid down, and the risk is
reduced.
This requirement has resulted in the accumulation of unnecessarily
high loan loss reserve funds for some premier lenders. In addition, it
has deterred additional premier certified lenders from participating in
the program at all.
Mr. Speaker, my bill simply allows these premier lenders the option
of creating risk-based loan loss reserves. It includes several
safeguards to ensure that these companies do not make bad loans and put
Federal taxpayers at risk. Specifically, premier certified lenders must
maintain no less than $100,000 in their loan loss reserve funds; they
must employ 3rd-party auditors to review their reserve funds on a
quarterly basis; their auditors must be approved by the SBA; and the
PCL must meet SBA performance benchmarks to retain their eligibility to
hold risk-based loan loss reserve funds.
Mr. Speaker, I want to sincerely thank Mr. Manzullo, my friend and
the Chairman of the Small Business Committee, for working with me to
get the bill to this point. I also want to thank the Ranking Member,
Ms. Velazquez for her valuable input, and Mrs. Christensen for
representing Ms. Velazquez on the floor today. Finally, I want to
express my gratitude to the Chairman's and Ranking Member's staff, as
well as my staff, for putting in so much time and energy into this
effort.
I encourage my colleagues to support our Nation's small businesses by
supporting this important legislation.
Mr. Speaker, I very much appreciate the bipartisan cooperation we
have had on this, and I urge the passage of the bill.
Mrs. CHRISTENSEN. Mr. Speaker, I yield such time as he may consume to
the gentleman from Illinois (Mr. Davis).
Mr. DAVIS of Illinois. Mr. Speaker, let me first of all thank the
gentlewoman from the Virgin Islands for yielding me this time. I also
want to commend the chairman, the gentleman from Illinois (Mr.
Manzullo), and the ranking member, the gentlewoman from New York (Ms.
Velazquez), for bringing this legislation to the floor and getting us
to this point.
When we talk about small businesses and we talk about the development
of small business, one of the primary problems that people face is
finding enough money to actually get a business off the ground, keep it
going, keep it moving, have enough capital to actually carry the
business on until they reach the point where they have the kind of cash
flow and they have the kind of returns that they know they need in
order to be stable and keep being successful. This PCLP Improvement Act
helps to do all of that. It helps to make capital available and it
gives people assistance to acquire what they actually need.
While it is true, Mr. Speaker, that some of the best things in life
are free, I remember the song that says ``But you can give it to the
birds and bees, what I need is money.'' And what small businesses need
is capital to help them grow, develop and flourish. This legislation
helps to do that.
Again I commend Chairman Manzullo, my colleague from Illinois, and
the ranking member for bringing this to the floor.
Mr. MANZULLO. Mr. Speaker, I reserve the balance of my time.
Mrs. CHRISTENSEN. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, small businesses today face many barriers to achieving
their success. Today's legislation helps address one of the most
significant barriers faced by small businesses: Access to capital. The
bill before us today will make more capital available to small
businesses, spurring economic development in our Nation's communities.
While today's legislation fixes a problem with the 504 program, it is
only a stopgap measure. Even after we pass this legislation, small
businesses will still have to endure SBA's inconsistent and
bureaucratic 504 loan processing procedures. As such, today's
legislation is the first of several near-term steps to centralize,
streamline, and modernize the 504 program so that it is better able to
meet the needs of our small businesses. First among these steps is this
year's SBA reauthorization, in which we will address many of these
deficiencies in order to help our country's small businesses access
capital more readily.
Mr. Speaker, I would like to take this moment to thank Adam
Minehardt, a Democratic staff member of the Committee on Small
Business, and Greg Orlando, a staff member for the gentleman from
California (Mr. Doolittle), for their work on this important
legislation. I also wish to thank the gentleman from California (Mr.
Doolittle) once again for bringing it to the committee, and our
chairman and ranking member for their leadership on this bill and all
the others we have worked on this year. This bill is truly a bipartisan
product and the work reflects that spirit.
Mr. Speaker, I again urge the adoption of this legislation.
Ms. MILLENDER-McDONALD. Mr. Speaker, I rise today to offer my support
for H.R. 923, the Premier Certified Lenders Program Act of 2003.
Mr. Speaker, small business owners all over this nation have long
been faced with a number of hurdles that limit their ability to be
successful. Health care costs have risen at an astronomical rate,
Federal regulations are being issued that establish competitive
advantages for large firms, and, perhaps most importantly, access to
capital is extremely limited.
In an attempt to address concerns about small business financing
issues, 3 years ago Congress established the Premier Certified Lenders
Program (PCLP) as a permanent Small Business Administration program.
The PCLP delegates substantial authority and autonomy to selected
Certified Development Companies (CDCs) participating in the Small
Business Administration's 504 Loan Program to offer long-term, fixed-
rate financing for major fixed assets such as land and buildings.
My district is home to a CDC, the Long Beach Area Certified
Development Corporation, and it serves the Cities of Long Beach, Signal
Hill and Southern Los Angeles County. Ms. Regina Grant Peterson does an
excellent job in reaching out to my constituents, doing all she can to
promote economic development in the community.
[[Page H5727]]
Currently, because of antiquated laws, CDCs participating in the PCLP
must keep financial reserves in excess of what is actually necessary to
safeguard against potential losses, and are not allowed to withdraw
from these reserves until loans are paid in full.
This severely limits the lending potential of these entities, costing
small businesses nationwide millions of dollars in unused capital.
H.R. 923 addresses this issue by allowing participating lenders to
withdraw from their loan loss reserves attributable to the payment of
principal on outstanding loans.
In addition, the legislation would also create a Bureau of Lender
Oversight within SBA that will oversee the calculation of loan loss
reserves, thereby insuring that government monies are used
appropriately.
Mr. Speaker, as a Ranking Member of the Small Business Committee, I
enthusiastically support this measure, and I support its swift passage.
Mrs. CHRISTENSEN. Mr. Speaker, I yield back the balance of my time.
Mr. MANZULLO. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Petri). The question is on the motion
offered by the gentleman from Illinois (Mr. Manzullo) that the House
suspend the rules and pass the bill, H.R. 923, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of
those present have voted in the affirmative.
Mr. MANZULLO. 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.
____________________