[Congressional Record Volume 158, Number 161 (Thursday, December 13, 2012)]
[Senate]
[Pages S8042-S8043]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Ms. LANDRIEU:
S. 3681. A bill to clarify the collateral requirement for certain
loans under section 7(d) of the Small Business Act, and for other
purposes; to the Committee on Small Business and Entrepreneurship.
Ms. LANDRIEU. Mr. President, I come to the floor today to speak on an
issue that is of great importance to my home State of Louisiana:
Federal disaster assistance. As you know, along the Gulf Coast we keep
an eye trained on the Gulf of Mexico during hurricane season. This is
following the devastating one-two punch of Hurricanes Katrina and Rita
of 2005 as well as Hurricanes Gustav and Ike in 2008. Unfortunately,
our region also has had to deal with the economic and environmental
damage from the Deepwater Horizon disaster in 2010 and more recently
Hurricane Isaac. Due to this history, as Chair of the Senate Committee
on Small Business and Entrepreneurship, ensuring Federal disaster
programs are effective and responsive to disaster victims is one of my
top priorities. While the Gulf Coast is prone to hurricanes, other
parts of the country are no strangers to disaster. The Midwest has
tornadoes, California experiences earthquakes and wildfires, and the
Northeast sees crippling snowstorms. So no part of our country is
spared from disasters--disasters which can and will strike at any
moment. This certainly hit home when the northeast was struck by
Hurricane Sandy in October of this year. With this in mind, we must
ensure that the Federal government is better prepared and has the tools
necessary to respond quickly and effectively following a disaster.
In order to give the U.S. Small Business Administration, SBA, better
tools to respond after a future disaster, I am proud to have filed S.
3672, legislation that will make a small but important improvement to
SBA's disaster assistance programs for impacted businesses. This
provision builds off of SBA disaster reforms enacted in 2008 and
ensures that SBA is responsive to the needs of small businesses seeking
smaller amounts of disaster assistance. These are the businesses that
are burdened the most by liens on their primary personal residential
homes when they could conceivably provide sufficient business assets as
collateral for the loan. In particular, the bill I am filing today
would clarify that, for SBA disaster business loans less than $200,000,
SBA is required to utilize assets other than the primary residence if
those assets are available to use as collateral towards the loan. The
bill is very clear though that these assets should be of equal or
greater value than the amount of the loan. Also, to ensure that this is
a targeted improvement, the bill includes additional language that this
bill in no way requires SBA to reduce the amount or quality of
collateral it seeks on these types of loans.
I note that this provision is similar to Section 204 of S. 2731, the
Small Business Administration Disaster Recovery and Reform Act of 2009
that Senator Bill Nelson and I introduced last Congress. A similar
provision also passed the House of Representatives twice last Congress.
H.R. 3854, which included a modified collateral requirement under
Section 801, passed the House on October 29, 2009, by a vote of 389-32.
The provision also passed the House again on November 6, 2009, by a
voice vote as Section 2 of H.R. 3743. So this provision has a history
of bipartisan Congressional support. I want to especially thank Ranking
Member Olympia Snowe for working with me to improve upon this previous
legislation. The legislation that I am filing today is a result of
discussions with both her and other stakeholders. I believe that this
bill is better because of improvements that came out these productive
discussions.
This bill addresses a key issue that is serving as a roadblock to
business owners interested in applying for smaller SBA disaster loans.
After the multiple disasters that hit the Gulf Coast, I and my staff
have consistently heard from business owners, discouraged from applying
for SBA disaster loans. When we have inquired further on the main
reasons behind this hesitation, the top concern related to SBA
requiring business owners to put up their personal home as collateral
for smaller SBA business disaster loans. This requirement is
understandable for large loans
[[Page S8043]]
between $750,000 and $2 million. However, business owners complained
about this requirement being instituted for loans of $200,000 or less.
I can understand their frustration. Business owners, in many cases who
have just lost everything, are applying to SBA for a $150,000 loan for
their business. SBA then responds by asking them to put up their
$400,000 personal home as collateral when the business may have
sufficient business assets available to collateralize the loan. While I
also understand the need for SBA to secure the loans, make the program
cost effective, and minimize risk to the taxpayer, SBA has at its
disposal multiple ways to secure loans.
Furthermore, SBA has repeatedly said publicly and in testimony before
my committee that it will not decline a borrower for a lack of
collateral. According to a July 14, 2010 correspondence between SBA and
my office, the agency notes that ``SBA is an aggressive lender and its
credit thresholds are well below traditional bank standards. . . . SBA
does not decline loans for insufficient collateral.'' SBA's current
practice of making loans is based upon an individual/business
demonstrating the ability to repay and income. The agency declines
borrowers for an inability to repay the loan. In regards to collateral,
SBA follows traditional lending practices that seek the ``best
available collateral.'' Collateral is required for physical loans over
$14,000 and Economic Injury Disaster Loans, EIDL, loans over $5,000.
SBA takes real estate as collateral when it is available, but as I
stated, the agency will not decline a loan for lack of collateral.
Instead it requires borrowers to pledge what is available. However, in
practice, SBA is requiring borrowers to put up a personal residence
worth $300,000 or $400,000 for a business loan of $200,000 or less when
there are other assets available for SBA.
While I do not want to see SBA tie up too much of a business'
collateral, I also believe that if a business is willing and able to
put up business assets towards its disaster loan, SBA should consider
that first before attempting to bring in personal residences. It is
unreasonable for SBA to ask business owners operating in very different
business environments post-disaster to jeopardize not just their
business but also their home. Loans of $200,000 or less are also the
loans most likely to be repaid by the business so personal homes should
be collateral of last resort in instances where a business can
demonstrate the ability to repay the loan and that it has other assets.
In closing, I believe that this commonsense fix will greatly benefit
businesses impacted by future disasters. This provision does not
substantively change SBA's current lending practices and it will not
have a significant cost. I believe that this legislation would not
trigger direct spending nor would it have a significant impact on the
subsidy rate for SBA disaster loans. Currently for every $1 loaned out,
it costs approximately 10 cents on the dollar. Most importantly, this
bill will greatly improve the SBA disaster loan programs for businesses
ahead of future disasters. If a business comes to the SBA for a loan of
less than $200,000 to make immediate repairs or secure working capital,
they can be assured that they will not have to put up their personal
home if SBA determines that the business has other assets to go towards
the loan. However, if businesses seek larger loans than $200,000, then
the current requirements will still apply. This ensures that very small
businesses and businesses seeking smaller amounts of recovery loans are
able to secure these loans without significant burdens on their
personal property. For the business owners we have spoken to, this
provides some badly needed clarity to one of the Federal Government's
primary tools for responding to disasters.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 3681
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. CLARIFICATION OF COLLATERAL REQUIREMENTS.
Section 7(d)(6) of the Small Business Act (15 U.S.C.
636(d)(6)) is amended by inserting after ``which are made
under paragraph (1) of subsection (b)'' the following: ``:
Provided further, That the Administrator, in obtaining the
best available collateral for a loan of not more than
$200,000 under paragraph (1) or (2) of subsection (b)
relating to damage to or destruction of the property of, or
economic injury to, a small business concern, shall not
require the owner of the small business concern to use the
primary residence of the owner as collateral if the
Administrator determines that the owner has other assets with
a value equal to or greater than the amount of the loan that
could be used as collateral for the loan: Provided further,
That nothing in the preceding proviso may be construed to
reduce the amount of collateral required by the Administrator
in connection with a loan described in the preceding proviso
or to modify the standards used to evaluate the quality
(rather than the type) of such collateral''.
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