[Congressional Record Volume 152, Number 43 (Thursday, April 6, 2006)]
[Senate]
[Pages S3243-S3245]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERRY (for himself, Mr. Pryor, and Ms. Landrieu):
  S. 2594. A bill to amend the Small Business Act to reauthorize the 
loan guarantee program under section 7(a) of that Act, and for other 
purposes; to the Committee on Small Business and Entrepreneurship.
  Mr. KERRY. Mr. President, every three years, our Committee reviews 
the majority of the Small Business Administration's (SBA) programs to 
see what's working, what's broken, and what can be improved. As ranking 
member of the Small Business and Entrepreneurship Committee currently, 
and a member for more than 20 years, I have worked on many 
reauthorizations. I can tell you that the SBA reauthorization process 
is a great opportunity to examine programs, to work with the small 
business groups and SBA's partners--those who use these programs on a 
day-to-day basis--and the SBA, to ensure that they serve their intended 
purpose and make the dream of a small business a reality to those who 
might not be eligible for business loans through conventional lending, 
don't have an MBA but need some management counseling, or need help 
cutting through red tape to get government contracts.
  Today I am focusing on the SBA's largest small business programs. 
Specifically, I am introducing legislation to reauthorize the 7(a) Loan 
Guaranty Program for three years. This bill, the ``7(a) Loan Program 
Reauthorization Act of 2006,'' authorizes the SBA to back more than a 
combined $58 billion in 7(a) loans to small businesses, gives borrowers 
more options when choosing SBA financing, reduces program fees on 
borrowers and lenders if the government charges excess fees or has 
excess funding, creates an Office of Minority Small Business 
Development within SBA to increase the availability of capital to 
minorities, and creates a National Preferred Lenders program to 
streamline the application process for exemplary lenders to operate on 
a national basis and reach more borrowers.
  7(a) loans are the most basic and widely used loan of the SBA 
business loan programs. These loans help qualified, small businesses 
obtain financing which is guaranteed for working capital, machinery and 
equipment, furniture and fixtures, land and building (including 
purchase, renovation and new construction), leasehold improvements, and 
debt refinancing, under special conditions. The loan maturity is up to 
10 years for working capital and generally up to 25 years for fixed 
assets. A key concept of the 7(a) guaranty loan program is that the 
loan actually comes from a commercial lender, not the government.
  This excellent private/public partnership has made this program one 
of the agency's most popular, with over 400,000 approved loans in the 
past six years. Last year alone, almost 96,000 small businesses 
received $15 billion in 7(a) loans, creating or retaining an estimated 
460,000 jobs. To ensure that we continue to have enough authorization 
levels to manage the increasing demand, my bill reauthorizes the 7(a) 
Loan Program for three additional years at $18,500,000,000 fiscal year 
07, $19,500,000,000 fiscal year 08 and $20,500,000,000 fiscal year 09. 
These authorization levels ensure that program levels are sufficiently 
high to enable the SBA to back the maximum amount of loans as possible 
and avoid credit rationing or shutdowns.
  Providing appropriate authorization levels to adequately address the 
capital needs of small businesses is as important as ensuring that 
eligible borrowers have access to both fixed asset financing and 
working capital to address all of their small business needs. 
Currently, borrowers who need working capital under the 7(a) program 
and fixed asset financing through the 504 loan program are not able to 
utilize both SBA loan guaranty programs to their maximum amount and are 
therefore forced to choose between the two programs. To prevent a 
situation where a borrower is forced to choose between getting a much-
needed facility or getting working capital, my bill specifies that the 
borrower can have financing under both loan programs at the maximum 
level, given they qualify for both programs. In previous years, both 
7(a) and 504 loans were subsidized by appropriated funds to pay losses. 
It was therefore appropriate to restrict small businesses to choose 
between the two programs. However, both of these programs are now self-
supporting, and it makes no sense to continue this restriction on 
borrowers.
  One of our jobs on the Committee is to make sure that SBA-backed 
financing remains affordable to the small business community. As I just 
referenced, the 7(a) program is now self-funding. The Administration 
insisted on eliminating all funding for the loans, shifting the cost to 
borrowers and lenders, by imposing higher fees on them. The 
administration spins this as a ``savings'' of $100 million to taxpayers 
while the small business community considers this a ``tax.'' In 
addition to this ``tax,'' the President's budget shows that borrowers 
and lenders already pay too much in fees, generating more than $800 
million in overpayments since 1992 because the government routinely 
over-estimates the amount of fees needed to cover the cost

[[Page S3244]]

of the program. This is part of the reason that many of us in Congress, 
on both sides of the aisle, opposed eliminating funding for the 
program. This legislation seeks to address overpayments by requiring 
the SBA to lower fees if borrowers and lenders pay more than is 
necessary to cover the program costs or if the Congress happens to 
appropriate money for the program and combined with fees there is 
excess funding to cover the cost of the program. The Senate adopted 
this provision, offered by me and Senator Landrieu last year, to the 
fiscal year 2006 Commerce Justice State Appropriations bill.
  In this reauthorization process, as I mentioned previously, I think 
it is important to look at specific programs and examine whether or not 
they are meeting their goals and intended mission. Part of the agency's 
mission is to fill the financing gap left by the private sector. 
According to a recent study by the U.S. Chamber of Commerce and 
Business Loan Express, availability of capital remains a priority for 
all small businesses, but for Hispanics and African Americans, it is 
one of their top three concerns. They are still more likely to use 
credit cards to finance their businesses, and they fear denial from 
lenders. Knowing of this need, I was deeply disappointed to see that 
although SBA's loan programs have increased lending overall, the 
figures surrounding the percentage of small business loans going to 
African-Americans, Hispanics, Asian Americans and women have not 
changed much since 2001. The administration will tell you that SBA has 
been ``highly successful'' in making business loans to minority groups 
facing competitive opportunity challenges. They claim that in fiscal 
year 2005, almost 30 percent of 7(a) loans and about 25 percent of 504 
loans were made to minority groups. However, according to the SBA's own 
data, since 2001, while numbers of 7(a) loans have gone up for African 
Americans, the dollars have remained at 3 percent of all money loaned. 
In the 504 program, loans to women have decreased from 19 percent in 
number to 15 percent, and dropped from 16 percent to 14 percent in 
dollars. In the Microloan program, African Americans received 28 
percent of the total number of microloans made in 2001 as compared to 
only 21 percent of the total number of loans made in 2005. Their 
microloan dollars have also decreased from $7.1 million to $5.7 million 
in 2005. Native Americans went from 2 percent of the total number of 
microloans made in 2001 to less than one percent--a mere .93 percent--
in 2005.

  These statistics are of great concern and demonstrate that the SBA 
has not been highly successful in playing an active role in fostering 
and encouraging robust entrepreneurial activity and small business 
ownership amongst these minority groups. The stagnant percentage of 
small business loans in these communities represents a failure of this 
Administration to provide an alternative means of obtaining capital to 
our underserved communities where funding has not been available 
throughout conventional lending methods.
  To break this trend and increase the proportion of small business 
loans to minorities, and the percentage of loans to African Americans, 
Hispanics, and Asians relative to their share of the population, my 
bill creates an Office of Minority Small Business Development at the 
SBA, similar to offices devoted to business development of veterans and 
women and rural areas. In charge of the office will be the Associate 
Administrator for Minority Small Business and Capital Ownership 
Development with expanded authority and an annual budget to carry out 
its mission.
  Currently this position is limited to carrying out the policies and 
programs of SBA's contracting programs required under sections 7(j) and 
8(a) of the Small Business Act. To make sure that minorities are 
getting a great share of loan dollars, venture capital investments, 
counseling, and contracting, this bill expands its authority and duties 
to work with and monitor the outcomes for programs under Capital 
Access, Entrepreneurial Development, and Government Contracting. It 
also requires the head of the Office to work with SBA's partners, trade 
associations, and business groups to identify more effective ways to 
market to minority business owners, and to work with the head of Field 
Operations to ensure that district offices have staff and resources to 
market to minorities. The latter is important because when SBA 
implemented its extensive workforce transformation plans several years 
ago, it eliminated lending-related jobs with a partial justification 
that remaining staff would be trained to do outreach and marketing to 
the community. However, district offices are not provided with 
sufficient funds or resources to do the job.
  In addition to setting sufficient program levels, giving our 
borrowers maximum loan options, reaching the underrepresented, and 
lowering fees to our borrowers, my bill makes great improvements in our 
lender operations. Lenders are key to providing these loans to small 
business borrowers throughout our nation. An exceptional lender in the 
7(a) program will often become a ``preferred lender,'' with the 
authority to approve, close, service and liquidate loans without the 
lender obtaining the prior specific approval of the agency. SBA 
requires that lenders request preferred lender status in each of the 70 
districts it desires to operate. There are many problems with this 
system, and this bill streamlines and makes uniform the process, an 
advantage to borrowers, lenders and the SBA.
  This preferred lender problem is not a new issue. During our last 
reauthorization in 2003, lenders complained that applying for lending 
autonomy in each of the 70 district office and branches is 
administratively burdensome, both for them and for the Agency staff, 
and that some district offices have taken advantage of the power to 
approve or disapprove lenders when they apply for this special lending 
status. I was very disappointed that this issue was not resolved in our 
last reauthorization. My bill attempts to alleviate this administrative 
burden on lenders and SBA staff who must process the application. My 
bill creates a National Preferred Lenders Program to allow lenders that 
have already demonstrated proficiency as a preferred lender the 
authority to operate in any state where it desires to make loans. To 
ensure that national preferred lenders are proficient and experienced, 
this bill requires the Administrator, no later than 60 days after 
enactment, to establish eligibility criteria for national preferred 
lenders but suggests that the criteria established include several 
things--consideration of whether the lender has experience as a 
preferred lender in not fewer than 5 district offices of the 
Administration for a minimum of 3 years in each territory, uniform 
written policies on the 7(a) loan program, including centralized loan 
approval, servicing, and liquidation functions and processes that are 
satisfactory to the administration.
  If a national preferred lender fails to meet the eligibility 
requirements established by the Administrator, the lender shall be 
notified of this deficiency and allowed a reasonable time for 
correction. Failure to correct the deficiency may result in suspension 
or revocation as a national preferred lender.
  Last, my legislation directs the SBA to establish a simple and 
straightforward alternative size standard for business loan applicants 
under section 7(a), similar to what is already available for borrowers 
in the 504 loan program, which utilizes maximum tangible net worth and 
average net income as an alternative to the use of industry standards. 
Currently, in order to be eligible for an SBA business loan, the 
borrower must meet the definition of small businesses. Pursuant to the 
Small Business Act, SBA has promulgated size standards by industry 
utilizing the North American Industry Classification System. The SBA 
table based on this system is over 20 pages, single-spaced, which has 
made this size standard very complicated for lenders to utilize.
  In closing, I want to commend the community of 7(a) lenders for the 
tens of thousands of borrowers they reach every year, and for working 
with us to understand how to improve the program to attract more 
lenders and reach more borrowers. I hope that the Committee will act on 
this bill and other similar reauthorization bills before the current 
laws governing the 7(a) loan program expire on September 30, 2006. I 
ask unanimous consent that my remarks be printed in the Record.

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