[Congressional Record Volume 153, Number 70 (Tuesday, May 1, 2007)]
[Extensions of Remarks]
[Pages E897-E898]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            SMALL BUSINESS LENDING IMPROVEMENTS ACT OF 2007

                                 ______
                                 

                               speech of

                        HON. DONALD A. MANZULLO

                              of illinois

                    in the house of representatives

                       Wednesday, April 25, 2007

       The House in Committee of the Whole House on the State of 
     the Union had under consideration the bill (H.R. 1332) to 
     improve the access to capital programs of the Small Business 
     Administration and for other purposes:

  Mr. MANZULLO. Mr. Chairman, I rise in reluctant opposition to the 
Small Business Lending Improvements Act of 2007. I strongly support the 
changes made in this legislation to the Certified Development Company 
Economic Development or 504 loan program. However, I have grave 
concerns regarding many of the changes made in this legislation to the 
other mainstay of the SBA's access to credit programs: the 7(a) 
guaranteed lending program.
  Specifically, Section 101 sets the stage to eventually reinstate the 
federal loan subsidy for the 7(a) program later this year. This 
provision requires the Small Business Administration (SBA) to 
recalculate the subsidy rate each fiscal quarter so that if an 
appropriation is provided for sometime during the fiscal year, fees can 
be reduced for small business borrowers and lenders. While I believe 
this provision violates the Federal Credit Reform Act of 1990 because 
it requires the re-opening of the assumptions that comprise the credit 
subsidy model just for the SBA's 7(a) program as contained in the 
President's annual budget request, I am more concerned about its 
potential detrimental effects upon our Nation's small businesses. While 
I am all for lowering fees, it has to be done in a fiscally-responsible 
manner, particularly during these tight budgetary times. In short, 
Section 101 is unnecessary and will set the 7(a) program back on an 
unstable course, thus reducing its availability and

[[Page E898]]

attractiveness to potential small business borrowers and lenders. The 
primary association with the expertise on the 7(a) program the National 
Association of Government Guaranteed Lenders (NAGGL)--is neutral on 
H.R. 1332 and has declined to take a position on the legislation.
  First, Section 101 is simply unnecessary. As the former chairman of 
the Small Business Committee, I never heard one complaint from any 
small business owner about the 7(a) fee structure. However, I heard 
dozens of complaints from small businesses when the 7(a) program was 
shut down or operated with severe constraints in 2002, 2003, and 2004 
because the appropriations bill that contained the funding for the SBA 
did not pass in time. I frequently challenged the supporters of 
reinstating a loan subsidy for the 7(a) program to find me one small 
business that was not able to get a 7(a) loan because of the higher 
fees imposed after 2004. They were never able to produce me one 
example. Why is that? Because the so-called higher fees that went into 
effect in 2004 were at the same level as they were prior to 2002. What 
happened when the 7(a) fees went back to the 2002 level? Despite many 
dire predictions at the time, the 7(a) program grew and thrived because 
lenders and borrowers knew that it would be around for the long-haul. 
The 7(a) program no longer had to rely on the timeliness of passing an 
annual appropriation bill. The 7(a) program now operates on automatic 
pilot similar to how the other main access to credit programs at the 
SBA--the 504 and the Small Business Investment Company (SBIC) 
programs--that also receive no annual subsidy and operates totally on 
user fees. October 1st--the beginning of the new federal fiscal year--
is no longer is a day of anxiety and worry for small business borrowers 
and lenders.

  Second, Section 101 will set the 7(a) program back on a path of 
instability. Unfortunately, this is a very technical and arcane debate 
where numbers and statistics are thrown around very casually. Some 
argue that H.R. 1332 will reduce fees up to $50,000 to small business 
borrowers. But then in the next breath, they argue that this bill will 
not modify the subsidy rate. Both cannot be true. It's important to 
remember that the main goal of the Democratic proponents of this 
legislation is to reinstate the loan subsidy for the 7(a) program. 
That's why the Congressional Budget Office (CBO) estimated that Section 
101 will increase spending by $305 million in Fiscal Year 2008 and 
$2.265 billion over the next five years. Keep in mind, Mr. Chairman, 
that the President requested only $464 million in spending on the 
entire SBA in FY '08. If fully implemented, this bill would almost 
double the spending on the SBA in one year!
  The Democratic supporters of this legislation also wish to duplicate 
the 7(a) fee structure as it was in place between 2002 and 2004 in 
which there was a federal loan subsidy of approximately $100 million 
each year for a 7(a) program level of under $9.5 billion. However, 
there were only three fees temporarily reduced during this time period 
as part of an economic stimulus package in the aftermath of the 
terrorist attacks of September 11, 2001. Just like other economic 
stimulus measures, such as the 50 percent bonus tax depreciation, these 
7(a) fee reductions were intended to only remain in place a short while 
until the economy got back on track. They were never intended to become 
part of permanent law.
  The upfront 7(a) borrower fee was temporarily reduced from 2 percent 
to 1 percent for small businesses seeking smaller 7(a) loans of under 
$150,000. For 7(a) loans between $150,000 and $700,000, the upfront fee 
was temporarily reduced from 3 percent to 2.5 percent. The 3.5 percent 
upfront fee on 7(a) loans from $700,000 to $1 million, which was the 
maximum loan guarantee limit at the time, was not reduced at all during 
the 2002 to 2004 time period. However, the annual on-going fee changed 
to lenders on the remaining outstanding balance on a 7(a) loan was also 
temporarily cut in half from 0.50 percent to 0.25 percent. Thus, at 
most, a fee structure that temporarily existed between 2002 and 2004 
produced a maximum savings of $3,500 to a small business seeking to 
borrow $700,000. For a small business borrower seeking a loan of 
$150,000, the maximum savings was $1,500. Both figures are a far cry 
from $50,000.
  It is also important to remember that the upfront fee is rolled into 
the overall loan and amortized over the life-time of the loan. In other 
words, a borrower is not forced to come up with the entire upfront fee 
at closing. For the average small business 7(a) borrower, the fee 
change in 2004 only amounted to an increased payment of $10 per month. 
Thus, in return for an extra $10 per month, small business borrowers 
and lenders no longer have to worry about the 7(a) program ending or 
operating with various restrictions. However, if the 7(a) program is 
put back in the appropriations process, then there will be uncertainty 
if the program will be around for the long-term. Section 101 also 
allows 7(a) fees to fluctuate every few months depending upon whether 
or not Congress adds or subtracts money for a loan subsidy; thus 
harming long-term planning. This policy change also sets the precedent 
to reinstate the loan subsidies for the 504 and SBIC programs, which is 
the long-term goal of the Democratic proponents of this legislation.

  I'm also concerned that at a time when we should be streamlining 
government, H.R. 1332 creates three new lending programs at the SBA and 
makes one pilot program permanent. While I am sympathetic to the need 
to increase lending to rural areas, help health care professionals to 
open up shop in medically underserved areas, and assist veterans and 
reservists, the initiatives contained in Sections 102 through 105 of 
H.R. 1332 fundamentally undermine the ``zero'' loan subsidy policy in 
the 7(a) program. To fully implement these provisions, Congress will be 
forced to choose between higher fees for all other small business 
borrowers or an even higher appropriation to subsidize these new 
programs. Knowing the perspective of the Democratic proponents of this 
legislation who fundamentally disagree with ``zero subsidy,'' these 
initiatives will put further pressure on Congress to reinstate an 
appropriation for the 7(a) loan subsidy. CBO estimated that these three 
specific proposals will cost the taxpayer $11 million in 2008 and $77 
million over the next five years. These provisions also set the 
precedent for other well-deserving groups to request Congress at a 
later date to eliminate 7(a) fees for them and provide their group with 
a much higher 90 percent guarantee rate on 7(a) loans, further exposing 
precious taxpayer money to higher risk of default and loss. It will be 
very hard for a future Congress to say no to these groups once these 
precedents have been set in this bill. I enclose for the Record a copy 
of the Administration's position on H.R. 1332, which reflects many of 
my same concerns listed above.
  I am proud over what Republicans on the Small Business Committee were 
able to accomplish over the last 12 years to promote fiscal 
responsibility at the SBA while at the same time helping a record 
number of small businesses. When Republicans were given stewardship of 
Congress in 1995, Congress spent $213 million of the taxpayer's hard-
earned money on the SBA to support a 7(a) and 504 loan program volume 
of $8.3 billion to reach 55,800 small business borrowers. In 2006, the 
SBA doubled that level of assistance to reach over 100,000 small 
business borrowers with a 7(a) and 504 loan program usage level of 
$19.1 billion--all at no direct cost to the taxpayer. We should not 
return to the pre-1995 days just to satisfy a philosophical desire to 
restore loan subsidy, particularly for a program that doesn't need it. 
The old adage applies here--if it ain't broke, don't fix it. Again, 
NAGGL has not taken a position on this bill. In short, Mr. Chairman, 
the 7(a) program ain't broke and the ``cure'' in Title I of H.R. 1332 
is worse than the ``disease.'' I urge my colleagues on both sides of 
Capitol Hill to oppose this well-meaning but misguided legislation.

                                                   April 24, 2007.

                   Statement of Administration Policy


       h.r. 1332--small business lending improvements act of 2007

       The Administration has achieved significant results in 
     expanding the availability of credit to small businesses. 
     Between fiscal years 2001 and 2006, the Small Business 
     Administration (SBA) has more than doubled the total number 
     of guaranteed loans to small businesses under the Section 
     7(a) and Section 504 loan programs. SBA has achieved this 
     growth while reducing program costs and taxpayer-provided 
     subsidies. H.R. 1332 could potentially reverse this success 
     by reintroducing or increasing taxpayer-funded subsidies for 
     small business loan programs. The Administration therefore 
     cannot support House passage of H.R. 1332 unless it is 
     amended to delete provisions that would increase these 
     subsidies and the need for appropriations and/or increased 
     fees on other loan applicants.
       The Administration also opposes provisions in the bill that 
     would: (1) duplicate rural lending activities currently 
     performed by the Department of Agriculture; (2) have SBA 
     refinance private debt, as Federally-backed credit should not 
     supplant private loans; and (3) raise constitutional 
     questions by establishing race or gender-based preferences 
     without presenting a strong basis in evidence that these 
     preferences meet constitutional, standards. The 
     Administration urges Congress to strike these provisions.

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