[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]

      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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