[Congressional Record Volume 164, Number 93 (Wednesday, June 6, 2018)]
[Senate]
[Pages S3027-S3028]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   SMALL BUSINESS INVESTMENT OPPORTUNITY ACT AND SMALL BUSINESS 7(a) 
                  LENDING OVERSIGHT REFORM ACT OF 2018

  Mr. CARDIN. Mr. President, last night, the Senate passed two pieces 
of bipartisan legislation that will increase access to capital for 
small businesses and strengthen the Small Business Administration's 
oversight of its largest lending program.
  First, I want to talk about the Small Business Investment Opportunity 
Act. This bill modifies SBA's Small Business Investment Company, SBIC, 
program by increasing the amount of capital SBICs with a single fund 
can invest in qualifying small businesses.
  This legislation will unlock millions in additional capital for small 
businesses with high-growth potential, create jobs, ensure the program 
keeps pace with inflation, and align the program with changes Congress 
made in 2015.
  Earlier this year, I introduced the Senate version of this 
legislation with Senators Risch and Kennedy as original cosponsors. It 
was reported out of the Small Business and Entrepreneurship Committee 
in March by a vote of 19-0.
  SBICs are privately owned and managed investment funds that use their 
own capital--plus funds borrowed with an SBA guaranty--to capitalize 
small businesses. The purpose of the SBIC program is to stimulate 
investment in America's high-growth small businesses. The investments 
are made at no expense to taxpayers.
  This bill is straightforward. Under current law, SBA can guarantee up 
to $150 million for a single SBIC investment fund. This legislation 
increases

[[Page S3028]]

that cap to $175 million. The cap has not been raised since 2009. 
Today, adjusted for inflation, the amount should be nearly $170 
million. Raising this cap ensures the program keeps up with inflation.
  This change also builds upon a bill Senators Risch and Shaheen and I 
passed in 2015 that increased the maximum leverage from $225 million to 
$350 million for SBICs with more than one fund, commonly referred to as 
a ``Family of Funds.''
  Aligning the maximum leverage cap for a single SBIC fund with that of 
a Family of Funds expands the capacity of SBA and its private-sector 
partners to deploy more capital to innovative, fast-growing small 
businesses. These are firms that boost local hiring, support our 
communities, drive innovation, and help our country maintain its 
competitive edge. Last year, SBICs helped more than 1,200 firms, 
creating or saving nearly 113,000 jobs.
  Some of America's most iconic brands have received investment capital 
from SBICs, including Apple, Tesla, Whole Foods, Staples, Intel, FedEx, 
and Costco, among others.
  Maryland is home to five SBICs, some with multiple funds. I would 
like to highlight a few successful small firms that got financing 
through a Baltimore-based SBIC called Patriot Capital.
  CSS Antenna is based in Edgewood, MD. This firm designs and 
manufactures products that support the wireless communications 
industry. Patriot Capital invested in CSS Antenna to support new 
product development and provide a stable layer of working capital to 
nurture company growth. During the life of Patriot's SBIC investment, 
CSS Antenna quadrupled its revenue and employee count, from 25 to 100.
  Patriot also invested in Advantage Engineers, based in Columbia, MD. 
This firm provides engineering services focused on the telecom, 
geotechnical, and environmental services markets. Since Patriot's SBIC 
investment in 2016, Advantage Engineers' has doubled its revenue and 
tripled its employees from 200 to 600. This firm could benefit from 
additional SBIC investment once the Small Business Investment 
Opportunity Act is implemented.
  Finally, for those of you who like to check the weather on your 
smartphone, you might be interested to know that WeatherBug is an SBIC 
investment. WeatherBug provides desktop and mobile users with real-
time, local weather information.
  WeatherBug is the product of Earth Networks, based in Germantown, MD. 
Patriot Capital has provided various levels of SBIC capital to Earth 
Networks to support a series of initiatives, including expansion into 
Smart Home technology that allows you to remotely control your home's 
lights, locks, and heating and cooling systems.
  With passage of this legislation, I am hopeful that more investments 
will flow to innovative small businesses in Maryland and throughout the 
country.
  I also thank my colleagues for supporting the Small Business 7(a) 
Lending Oversight Reform Act of 2018. The goal of this legislation is 
to strengthen SBA's ability to conduct effective oversight of its 
largest lending program, the 7(a) Loan Guaranty Program, and 7(a) 
lenders.
  The 7(a) program, through government guaranteed loans made by private 
sector lenders, provide small businesses with the capital they need for 
a broad range of purposes, from working capital for payroll and 
inventory to financing for buildings and equipment. The maximum loan 
size is $5 million, the maximum term is 25 years, and the program 
operates at zero subsidy, with costs covered by borrower and lender 
fees.
  Protecting the integrity and stability of the 7(a) program is 
important because it is one of the largest sources of long-term capital 
available to small businesses in our country. The program's longer 
terms reduce the monthly payments for small firms and provide essential 
working capital to manage startup and growth.
  Last year, the SBA 7(a) loan program helped more than 62,000 small 
businesses. Combined, they were approved for more than $25 billion in 
loans, which supported more than 571,000 U.S. jobs.
  In Maryland, the 7(a) loan program helped 833 firms, which pumped 
nearly $300 million into local communities, supporting more than 6,700 
jobs.
  The Small Business 71(a) Lending Oversight Reform Act of 2018 
strengthens SBA's oversight of 7(a) lenders in the following ways: 
modernizes the definition of and compliance with the Credit Elsewhere 
test; creates a streamlined process to prevent a shutdown of the 
program with a process by which SBA can request an increase of the 7(a) 
lending cap, up to 15 percent, after an appropriate waiting period; 
ensures the Director of the Office of Credit Risk Management, OCRM, is 
qualified and nonpartisan; improves the quality of lender reviews and 
examinations; and strengthens the rights of lenders to get timely 
reports of oversight reviews and appeal penalties.
  Of the reforms we are enacting, two of the most significant are 
modernizing the credit elsewhere test and streamlining the process to 
increase the 7(a) program cap.
  The credit elsewhere test is the bedrock of the 7(a) program. It was 
created to ensure SBA is only backing loans to qualified borrowers who, 
but for the guaranty, would not get a loan based on conventional market 
standards. This lender oversight bill updates the credit elsewhere 
definition to reflect current market gaps, reinforces OCRM's duty to 
ensure lenders use the credit elsewhere test for the benefit of the 
borrower and not the lender, and strengthens OCRM's authority to 
substantiate how lenders determine and document the credit elsewhere 
test.
  Creating a streamlined process to increase the lending capacity of 
SBA's largest loan program will provide needed stability to this 
essential source of long-term capital for small businesses. Currently, 
if the 7(a) program hits its lending cap, Congress must act 
legislatively to raise the program level. Finding a timely legislative 
vehicle is difficult and this legislative uncertainty can trigger 
market uncertainty and shutdown the program.
  To address this problem, this bill establishes a notification-and-
wait process by which SBA can notify Congress of its intent to increase 
the 7(a) lending cap, up to 15 percent, after a 30-day waiting period. 
To prevent abuse of this authority, SBA may only increase the cap once 
a year.
  I support the 7(a) loan program and these lender oversight reforms. I 
look forward to building on this legislation by identifying ways to 
increase 7(a) loans to borrowers in unserved markets.

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