[House Report 104-750]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-750
_______________________________________________________________________


 
            SMALL BUSINESS PROGRAMS IMPROVEMENT ACT OF 1996

                                _______
                                

 August 2, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mrs. Meyers of Kansas, from the Committee on Small Business, submitted 
                             the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3719]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 3719) to amend the Small Business Act and Small 
Business Investment Act of 1958, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Small Business 
Programs Improvement Act of 1996''.
  (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Administrator defined.
Sec. 3. Effective date.

                TITLE I--AMENDMENTS TO SMALL BUSINESS ACT

Sec. 101. References.
Sec. 102. Risk management data base.
Sec. 103. Section 7(a) loan program.
Sec. 104. Disaster loan program.
Sec. 105. Microloan demonstration program.
Sec. 106. Small business development center program.
Sec. 107. Miscellaneous authorities to provide loans and other financial 
          assistance.
Sec. 108. Small business competitiveness demonstration program.
Sec. 109. Amendment to Small Business Guaranteed Credit Enhancement Act 
          of 1993.
Sec. 110. 1998 authorizations.
Sec. 111. Level of participation for export working capital loans.

          TITLE II--AMENDMENTS TO SMALL BUSINESS INVESTMENT ACT

Sec. 201. References.
Sec. 202. Modifications to development company debenture program.
Sec. 203. Required actions upon default.
Sec. 204. Loan liquidation pilot program.
Sec. 205. Registration of certificates.
Sec. 206. Preferred surety bond guarantee program.

SEC. 2. ADMINISTRATOR DEFINED.

  In this Act, the term ``Administrator'' means the Administrator of 
the Small Business Administration.

SEC. 3. EFFECTIVE DATE.

  Except as otherwise expressly provided, this Act and the amendments 
made by this Act shall take effect on October 1, 1996.

               TITLE I--AMENDMENTS TO SMALL BUSINESS ACT

SEC. 101. REFERENCES.

  Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Small Business Act (15 
U.S.C. 631 et seq.).

SEC. 102. RISK MANAGEMENT DATA BASE.

  Section 4(b) (15 U.S.C. 633) is amended by inserting after paragraph 
(2) the following:
          ``(3) Risk management database.--
                  ``(A) Establishment.--The Administration shall 
                establish, within the management system for the loan 
                programs authorized by subsections (a) and (b) of 
                section 7 of this Act and title V of the Small Business 
                Investment Act of 1958, a management information system 
                that will generate a database capable of providing 
                timely and accurate information in order to identify 
                loan underwriting, collections, recovery, and 
                liquidation problems.
                  ``(B) Information to be maintained.--In addition to 
                such other information as the Administration considers 
                appropriate, the database established under 
                subparagraph (A) shall, with respect to each loan 
                program described in subparagraph (A), include 
                information relating to--
                          ``(i) the identity of the institution making 
                        the guaranteed loan or issuing the debenture;
                          ``(ii) the identity of the borrower;
                          ``(iii) the total dollar amount of the loan 
                        or debenture;
                          ``(iv) the total dollar amount of government 
                        exposure in each loan;
                          ``(v) the district of the Administration in 
                        which the borrower has its principal office;
                          ``(vi) the borrower's principal line of 
                        business, as identified by Standard Industrial 
                        Classification Code (or any successor to that 
                        system);
                          ``(vii) the delinquency rate for each program 
                        (including number of instances and days 
                        overdue);
                          ``(viii) the number of defaults in each 
                        program (including losses and recoveries);
                          ``(ix) the number of deferrals or 
                        forbearances in each program (including days 
                        and number of instances); and
                          ``(x) comparisons on the basis of loan 
                        program, lender, Administration district and 
                        region, for all the data elements maintained.
                  ``(C) Deadline for operational capability.--The 
                database established under subparagraph (A) shall be 
                operational not later than March 31, 1997, and shall 
                capture data beginning on the first day of the first 
                quarter of fiscal year 1997 beginning after such date 
                and thereafter.''.

SEC. 103. SECTION 7(a) LOAN PROGRAM.

  (a) Servicing and Liquidation of Loans by Preferred Lenders.--Section 
7(a)(2)(C)(ii)(II) (15 U.S.C. 636(a)(2)(C)(ii)(II)) is amended to read 
as follows:
                                  ``(II) complete authority to service 
                                and liquidate such loans without 
                                obtaining the prior specific approval 
                                of the Administration for routine 
                                servicing and liquidation activities, 
                                but shall not take any actions creating 
                                an actual or apparent conflict of 
                                interest.''.
  (b) Certified Lenders Program.--Section 7(a)(19) (15 U.S.C. 
636(a)(19)) is amended to read as follows:
          ``(19)(A) Certified lenders program.--
                  ``(i) Establishment.--In addition to the Preferred 
                Lenders Program authorized by the proviso in section 
                5(b)(7), the Administration is authorized to establish 
                a Certified Lenders Program for lenders who establish 
                their knowledge of Administration laws and regulations 
                concerning the guaranteed loan program and their 
                proficiency in program requirements.
                  ``(ii) Suspension and revocation.--The designation of 
                a lender as a certified lender shall be suspended or 
                revoked at any time that the Administration determines 
                that the lender is not adhering to its rules and 
                regulations or that the loss experience of the lender 
                is excessive as compared to other lenders, but such 
                suspension or revocation shall not affect any 
                outstanding guarantee.
          ``(B) Uniform and simplified loan forms.--In order to 
        encourage all lending institutions and other entities making 
        loans authorized under this subsection to provide loans of 
        $50,000 or less in guarantees to eligible small business loan 
        applicants, the Administration shall develop and allow 
        participating lenders to solely utilize a uniform and 
        simplified loan form for such loans.
          ``(C) Low documentation loan program.--The Administrator may 
        carry out the low documentation loan program for loans of 
        $100,000 or less only through Preferred Lenders and Certified 
        Lenders, or lenders with significant experience making small 
        business loans. The Administration shall give special 
        consideration to lenders who have made loans under the 
        authority of this section. The Administrator shall promulgate 
        regulations defining the experience necessary for lenders other 
        than Preferred or Certified Lenders for participation as a 
        lender in the low documentation loan program no later than 90 
        days after the date of enactment of this subsection.
          ``(D) Authority liquidate loans.--
                  ``(i) In general.--Lenders participating in the 
                Certified Lenders Program shall have authority to 
                liquidate loans made with a guarantee from the 
                Administration.
                  ``(ii) Approval.--The Administrator has the authority 
                to require a certified lender to request approval of a 
                routine liquidation activity, and if the Administrator 
                does not approve or deny a request made by a certified 
                lender within a period of 3 business days, such request 
                shall be deemed to be approved.
          ``(E) Low documentation loan program subsidy rate.--The 
        Administrator shall with the assistance of the Director of the 
        Office of Management and Budget establish and monitor, on an 
        annual basis, the subsidy rate for the low documentation loan 
        program, independently of other loans authorized by this 
        section.''.
  (c) Limitation on Conducting Pilot Projects.--Section 7(a) (15 U.S.C. 
636(a)) is amended by adding at the end the following new paragraph:
          ``(25) Limitation on conducting pilot projects.--
                  ``(A) In general.--Not more than 10 percent of the 
                total number of loans guaranteed in any fiscal year 
                under this subsection may be awarded as part of a pilot 
                program which is commenced by the Administrator on or 
                after October 1, 1996.
                  ``(B) Pilot program defined.--In this paragraph, the 
                term `pilot program' means any lending program 
                initiative, project, innovation, or other activity not 
                specifically authorized by law.''.
  (d) Securitization of Unguaranteed Portions of SBA Loans.--Section 
5(f)(3) (15 U.S.C. 634(f)(3)) is amended by adding at the end the 
following: ``The Administration may not prohibit a lender from 
securitizing the nonguaranteed portion of any loan made under section 
7(a). In order to reduce the risk of loss to the government in the 
event of default, the Administration shall require all lenders 
securitizing, or requesting Administration approval for the 
securitization of the nonguaranteed portion of any loan after August 1, 
1996, to retain exposure of up to 10 percent of the amount of the loan, 
which percentage shall be applicable uniformly to both depository 
institutions and other lenders.''.
  (e) Conditions on Purchase of Loans.--
          (1) Servicing fee.--Section 5(g)(5) (15 U.S.C. 634(g)(5)) is 
        amended by adding at the end the following:
  ``(C) In the event the Administration pays a claim under a guarantee 
issued under this Act, the servicing fees paid to the lender from the 
earliest date of default to the date of payment of the claim shall be 
no more than the agreed upon rate, minus one percent.''.
          (2) Payment of accrued interest.--Section 7(a)(17) is 
        amended--
                  (A) by striking ``(17) The Administration'' and 
                inserting ``(17)(A) The Administration''; and
                  (B) by adding at the end the following:
          ``(B) Any bank or other lending institution making a claim 
        for payment on the guaranteed portion of a loan made under this 
        subsection shall be paid the accrued interest due on the loan 
        from the earliest date of default to the date of payment of the 
        claim at a rate not to exceed the rate of interest on the loan 
        on the date of default, minus one percent.''.
  (f) Plan for Transfer of Loan Servicing Functions to Centralized 
Centers.--
          (1) Implementation plan required.--The Administrator of the 
        Small Business Administration shall submit a detailed plan for 
        consolidating, in one or more centralized centers, the 
        performance of the various functions relating to the servicing 
        of loans directly made or guaranteed by the Administration 
        pursuant to the Small Business Act, addressing the matters 
        described in paragraph (2) by the deadline specified in 
        paragraph (3).
          (2) Contents of plan.--In addition to such other matters as 
        the Administrator may deem appropriate, the plan required by 
        paragraph (1) shall include--
                  (A) the proposed number and location of such 
                centralized loan processing centers;
                  (B) the proposed workload (identified by type and 
                numbers of loans and their geographic origin by the 
                Small Business Administration district office) and 
                staffing of each such center;
                  (C) a detailed, time-phased plan for the transfer of 
                the identified loan servicing functions to each 
                proposed center; and
                  (D) any identified impediments to the timely 
                execution of the proposed plan (including adequacy of 
                available financial resources, availability of needed 
                personnel, facilities, and related equipment) and the 
                Administrator's recommendations for addressing such 
                impediments.
          (3) Deadline for submission.--The plan required by paragraph 
        (1) shall be submitted to the Committees on the Small Business 
        of the House of Representatives and Senate not later than 
        February 28, 1997.
  (g) Preferred Lender Standard Review Program.--Not later than 60 days 
after the date of enactment of this Act, the Administrator shall issue 
a request for proposals regarding the standard review program for the 
Preferred Lender Program established by section 5(b)(7) of the Small 
Business Act (15 U.S.C. 634(b)(7)). The Administrator shall require 
such standard review for each new entrant to the Preferred Lender 
Program.
  (h) Independent Study of Loan Programs.--
          (1) Study required.--The Administrator shall conduct a 
        comprehensive assessment of the performance of the loan 
        programs authorized by section 7(a) of the Small Business Act 
        (15 U.S.C. 636(a)) and title V of the Small Business Investment 
        Act of 1958 (15 U.S.C. 661) addressing the matters described in 
        paragraph (2) and resulting in a report to Congress pursuant to 
        paragraph (5).
          (2) Matters to be assessed.--In addition to such other 
        matters as the Administrator considers appropriate, the 
        assessment required by paragraph (1) shall address, with 
        respect to each loan program described in paragraph (1) for 
        each of the fiscal years described in paragraph (3)--
                  (A) the number and frequency of deferrals and 
                defaults;
                  (B) default rates;
                  (C) comparative loss rates, by--
                          (i) type of lender (separately addressing 
                        preferred lenders, certified lenders, and 
                        general participation lenders);
                          (ii) term of the loan; and
                          (iii) dollar value of the loan at 
                        disbursement; and
                  (D) the economic models used by the Office of 
                Management and Budget to calculate the credit subsidy 
                rate applicable to the loan programs.
          (3) Period of assessment.--The assessments undertaken 
        pursuant to paragraph (2) shall address data for the period 
        beginning with the first full fiscal year of the implementation 
        of each loan program described in paragraph (1) through fiscal 
        year 1995.
          (4) Performance by the private sector.--
                  (A) Contractor performance.--A private sector 
                contractor shall be used by the Administrator to 
                conduct the assessment required by paragraph (1) and to 
                prepare the report to Congress required by paragraph 
                (3).
                  (B) Solicitation and award.--The contract shall be 
                awarded pursuant to a solicitation issued not later 
                than 60 days after the date of the enactment of this 
                Act, which shall provide for full and open competition. 
                The Administrator shall make every reasonable effort to 
                award the contract not later than 60 days after the 
                date specified in the solicitation for receipt of 
                proposals.
                  (C) Access to information.--The Administrator shall 
                provide to the contractor access to any information 
                collected by or available to the Administration with 
                regard to the loan programs being assessed. The 
                contractor shall preserve the confidentiality of any 
                information for which confidentiality is protected by 
                law or properly asserted by the person submitting such 
                information.
                  (D) Contract funding.--The Administrator shall fund 
                the cost of the contract from the amounts appropriated 
                for the salaries and expenses of the Administration for 
                fiscal year 1997.
          (5) Report to congress.--
                  (A) Contents.--The contractor shall submit a report 
                of--
                          (i) its analyses of the matters to be 
                        assessed pursuant to paragraph (2); and
                          (ii) its independent recommendations, with 
                        respect to each loan program, regarding--
                                  (I) improving the Administration's 
                                timely collection and subsequent 
                                management of data to measure the 
                                performance of each loan program 
                                described in paragraph (1); and
                                  (II) reducing loss rates for each 
                                such loan program.
                  (B) Submission by contractor.--The contractor shall 
                submit the report required by subparagraph (A) not 
                later than 6 months after the date of the contract 
                award.
                  (C) Submission to congress.--The Administrator shall 
                submit the report received from the contractor pursuant 
                to subparagraph (B) to the Committees on Small Business 
                of the House of Representatives and the Senate within 
                30 days of receipt of the report. The Administrator 
                shall append his comments, and those of the Office of 
                Management and Budget, if any, to the report.
  (i) General Accounting Office Study.--
          (1) In general.--The General Accounting Office shall conduct 
        a comparison of the cost of liquidation for--
                  (A) loans guaranteed under the Preferred Lenders 
                Program that are authorized by section 7(a) of the 
                Small Business Act (15 U.S.C. 636(a)) and liquidated by 
                the Preferred Lenders;
                  (B) loans made and liquidated by, Preferred Lenders, 
                but not guaranteed under the authority in section 7(a); 
                and
                  (C) loans guaranteed by the Small Business 
                Administration under the authority in section 7(a) and 
                liquidated by the Administration, taking into account 
                all of the related costs incurred by the Federal 
                Government.
          (2) Report.--Not later than 9 months after the date of 
        enactment of this Act the General Accounting Office shall 
        deliver the results of the study to the Committees on Small 
        Business of the House and Senate.

SEC. 104. DISASTER LOAN PROGRAM.

  (a) Interest Rate.--Section 7(c) (15 U.S.C. 636(c)) is amended by 
redesignating paragraphs (6) and (7) as paragraphs (8) and (9), 
respectively, and by inserting after paragraph (5) the following:
          ``(6) Disasters commencing after october 1, 1996.--
        Notwithstanding any other provision of law, the interest rate 
        on the Federal share of any loan made under subsection (b)(1) 
        and (b)(2) on account of a disaster commencing on or after 
        October 1, 1996, shall be in the case of a homeowner, or 
        business, or other concern, including agricultural 
        cooperatives, unable to obtain credit elsewhere, at the rate 
        prescribed by the Administration but not more than \3/4\ of the 
        rate determined by the Secretary of the Treasury, taking into 
        consideration the current average market yield on outstanding 
        marketable obligations of the United States with remaining 
        periods to maturity comparable to the average maturities of 
        such loans plus an additional charge of not to exceed 1 percent 
        per annum as determined by the Administrator, and adjusted to 
        the nearest \1/8\ of 1 percent.
          ``(7) Liability.--Whoever wrongfully misapplies the proceeds 
        of a loan under subsection (b) shall be liable to the 
        Administrator in an amount equal to 1\1/2\ times the original 
        principal amount of the loan.''.
  (b) Private Sector Loan Servicing Demonstration Program.--
          (1)(A) Demonstration program required.--The Administration 
        shall conduct a demonstration program, within the parameters 
        described in paragraph (2), to evaluate the comparative costs 
        and benefits of having the Administration's portfolio of 
        disaster loans serviced under contract rather than directly by 
        employees of the Administration.
          (B) Initiation date.--Not later than 90 days after the date 
        of enactment of this Act, the Administration shall issue a 
        request for proposals for the program parameters described in 
        paragraph (2).
          (2) Demonstration program parameters.--
                  (A) Loan sample.--The sample of loans for the 
                demonstration program shall be randomly drawn from the 
                Administration's portfolio of loans made pursuant to 
                section 7(b) of the Small Business Act and include 
                20,000 loans for residential properties and 5,000 loans 
                for commercial properties.
                  (B) Contract and options.--The Administration shall 
                solicit and competitively award one or more contracts 
                to service the loans included in the sample of loans 
                described in subparagraph (A) for a term of 2 years 
                with 5 2-year options, each to be awarded subject to 
                subparagraph (C).
                  (C) Assessments of performance.--Prior to award of 
                any contract option, the Administration shall assess 
                the costs and performance of each contractor and 
                compare such costs and such performance to the costs 
                and performance of servicing disaster loans by 
                employees of the Administration. The Administrator 
                shall not exercise a contract option if the cost of 
                performance of the loan servicing by the contractor 
                exceeds the cost of performance of the loan servicing 
                by employees of the Administration. The Administrator 
                may terminate the contract during its initial term (or 
                any subsequent option period), based upon performance 
                and cost criteria specified in the solicitation and 
                included in the contract.
                  (D) Disposition of government furnished property.--
                The contract shall require the contractor to--
                          (i) maintain the confidentiality of the loan 
                        files furnished by the Administration; and
                          (ii) return such loan files and other 
                        Government-furnished property within a 
                        specified period after expiration (or 
                        termination) of the contract.
          (3) Term of demonstration program.--
                  (A) In general.--The demonstration program required 
                by paragraph (1) shall commence on the first day of the 
                first fiscal year quarter after the award of the 
                contract and continue through the last day of the 
                fiscal year quarter at the expiration of the 2-year 
                contract period or any subsequent contract option.
                  (B) Early termination.--If the Administrator 
                terminates each contract pursuant to paragraph (2)(C), 
                the demonstration program shall end on the effective 
                date of such termination.
          (4) Reports.--
                  (A) Interim reports.--The Administrator shall submit 
                to the Committees on Small Business of the House of 
                Representatives and Senate interim reports on the 
                conduct of the demonstration program not later than 60 
                days prior to the expiration of the initial 2-year 
                contract performance period, each subsequent option 
                period, or termination of a contract. The contractor 
                shall be afforded a reasonable opportunity to attach 
                comments to each such report.
                  (B) Final report.--The Administrator shall submit to 
                the Committees on Small Business of the House of 
                Representatives and Senate a final report within 120 
                days of the termination of the demonstration program.
  (c) Definition of Disaster.--(1) Section 3(k) (15 U.S.C. 632(k)) is 
amended by striking ``ocean conditions'' and inserting ``ocean 
conditions, or government action (regulatory or otherwise)''.
  (2) For the purposes of this Act this amendment shall be considered 
effective with respect to any disaster occurring on or after March 1, 
1994.

SEC. 105. MICROLOAN DEMONSTRATION PROGRAM.

  (a) Technical Assistance Grant Requirements.--Section 7(m)(4) (15 
U.S.C. 636(m)(4)) is amended--
          (1) in subparagraph (A) by striking ``25 percent'' and 
        inserting ``20 percent''; and
          (2) in subparagraph (B) by striking ``25 percent'' and 
        inserting ``35 percent''.
  (b) Implementation of Guaranteed Microloan Pilot Program.--
          (1) Action required.--The Administrator shall implement or 
        submit a detailed report explaining the impediments to the 
        implementation of a Guaranteed Microloan Pilot Program pursuant 
        to section 7(m)(12) (15 U.S.C. 636(m)(12)) addressing the 
        matters described in paragraph (2) by the deadline specified in 
        paragraph (3).
          (2) Contents of implementation report.--In addition to such 
        other matters as the Administrator may deem appropriate, the 
        plan required by paragraph (1) shall include any identified 
        impediments to implementation of a Guaranteed Microloan Pilot 
        Program that, in the opinion of the Administrator, require 
        amendments to the program's authorizing legislation, and if 
        such impediments are identified, includes recommendations for 
        such statutory changes.
          (3) Deadline for submission.--The plan required by paragraph 
        (2) shall be submitted to the Committees on Small Business of 
        the House of Representatives and Senate not later than December 
        1, 1996.
  (c) Limitation on Funding.--In the event that the Administrator shall 
fail to submit the report required by subsection (b)(1) by the deadline 
specified in subsection (b)(3), none of the amounts appropriated to 
carry out the Microloan Program authorized by section 7(m)(12) of the 
Small Business Act (15 U.S.C. 636(m)(12)) during fiscal year 1997 may 
be expended until such time as the pilot program is implemented or the 
report is submitted.

SEC. 106. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM.

  (a) Associate Administrator for Small Business Development Centers.--
          (1) Duties.--Section 21(h) (15 U.S.C. 648(h)) is amended to 
        read as follows:
  ``(h) Associate Administrator for Small Business Development 
Centers.--
          ``(1) Appointment and compensation.--The Administrator shall 
        appoint an Associate Administrator for Small Business 
        Development Centers who shall report to an official who is not 
        more than one level below the Office of the Administrator and 
        who shall serve without regard to the provisions of title 5 
        governing appointments in the competitive service, and without 
        regard to chapter 51, and subchapter III of chapter 53 of such 
        title relating to classification and General Schedule pay 
        rates, but at a rate not less than the rate of GS-17 of the 
        General Schedule.
          ``(2) Duties.--
                  ``(A) In general.--The sole responsibility of the 
                Associate Administrator for Small Business Development 
                Centers shall be to administer the small business 
                development center program. Duties of the position 
                shall include, but are not limited to, recommending the 
                annual program budget, reviewing the annual budgets 
                submitted by each applicant, establishing appropriate 
                funding levels therefore, selecting applicants to 
                participate in this program, implementing the 
                provisions of this section, maintaining a clearinghouse 
                to provide for the dissemination and exchange of 
                information between small business development centers 
                and conducting audits of recipients of grants under 
                this section.
                  ``(B) Consultation requirements.--In carrying out the 
                duties described in this subsection, the Associate 
                Administrator shall confer with and seek the advice of 
                the Board established by subsection (i) and 
                Administration officials in areas served by the small 
                business development centers; however, the Associate 
                Administrator shall be responsible for the management 
                and administration of the program and shall not be 
                subject to the approval or concurrence of such 
                Administration officials.''.
          (2) References to associate administrator.--Section 21 (15 
        U.S.C. 648) is amended--
                  (A) in subsection (c)(7) by striking ``Deputy 
                Associate Administrator of the Small Business 
                Development Center program'' and inserting ``Associate 
                Administrator for Small Business Development Centers''; 
                and
                  (B) in subsection (i)(2) by striking ``Deputy 
                Associate Administrator for Management Assistance'' and 
                inserting ``Associate Administrator for Small Business 
                Development Centers''.
  (b) Extension or Renewal of Cooperative Agreements.--Section 21(k)(3) 
(15 U.S.C. 648(k)(3)) is amended to read as follows:
          ``(3) Extension or renewal of cooperative agreements.--
                  ``(A) In general.--In extending or renewing a 
                cooperative agreement of a small business development 
                center, the Administration shall consider the results 
                of the examination and certification program conducted 
                pursuant to paragraphs (1) and (2).
                  ``(B) Certification requirement.--After September 30, 
                2000, the Administration may not renew or extend any 
                cooperative agreement with a small business development 
                center unless the center has been approved under the 
                certification program conducted pursuant to this 
                subsection; except that the Associate Administrator for 
                Small Business Development Centers may waive such 
                certification requirement, in the discretion of the 
                Associate Administrator, upon a showing that the center 
                is making a good faith effort to obtain 
                certification.''.
  (c) Technical Correction.--Section 21(l) (15 U.S.C. 648(l)) is 
amended to read as follows:
  ``(l) Contract Authority.--The authority to enter into contracts 
shall be in effect for each fiscal year only to the extent and in the 
amounts as are provided in advance in appropriations Acts. After the 
administration has entered a contract, either as a grant or a 
cooperative agreement, with any applicant under this section, it shall 
not suspend, terminate, or fail to renew or extend any such contract 
unless the Administration provides the applicant with written 
notification setting forth the reasons therefore and affording the 
applicant an opportunity for a hearing, appeal, or other administrative 
proceeding under the provisions of chapter 5 of title 5, United States 
Code.''.

SEC. 107. MISCELLANEOUS AUTHORITIES TO PROVIDE LOANS AND OTHER 
                    FINANCIAL ASSISTANCE.

  (a) Funding Limitation; Seminars.--Section 7(d) (15 U.S.C. 636(d)) is 
amended--
          (1) by striking ``(d)(1)'' and inserting ``(d)''; and
          (2) by striking paragraph (2).
  (b) Trade Adjustment Loans.--Section 7(e) (15 U.S.C. 636(e)) is 
amended to read as follows:
  ``(e) [RESERVED].''.
  (c) Waiver of Credit Elsewhere Test for Colleges and Universities.--
Section 7(f) (15 U.S.C. 636(f)) is amended to read as follows:
  ``(f) [RESERVED].''.
  (d) Loans to Small Business Concerns for Solar Energy and Energy 
Conservation Measures.--Section 7(l) (15 U.S.C. 636(l)) is amended to 
read as follows:
  ``(l) [RESERVED].''.

SEC. 108. SMALL BUSINESS COMPETITIVENESS DEMONSTRATION PROGRAM.

  (a) Extension of Demonstration Program.--Section 711(c) of the Small 
Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 
644 note; 102 Stat. 3890) is amended by striking ``September 30, 1996'' 
and inserting ``September 30, 2000''.
  (b) Reporting of Subcontract Participation in Contracts for 
Architectural and Engineering Services.--Section 714(b)(5) of the Small 
Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 
644 note; 102 Stat. 3892) is amended to read as follows:
          ``(5) Duration.--The system described in subsection (a) shall 
        be established not later than October 1, 1996 (or as soon as 
        practicable thereafter on the first day of a subsequent quarter 
        of fiscal year 1997), and shall terminate on September 30, 
        2000.''.
  (c) References to Architectural and Engineering Services.--
          (1) In general.--The Small Business Competitiveness 
        Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 
        Stat. 3889 et seq.) is amended in subsections (a)(3) and (d) by 
        striking ``surveying and mapping'' and inserting ``surveying, 
        mapping, and landscape architecture''.
          (2) Designated industry groups.--Section 717(d) of the Small 
        Business Competitiveness Demonstration Program Act of 1988 (15 
        U.S.C. 644 note; 102 Stat. 3894) is amended by inserting 
        ``standard industrial classification codes 0781 (if identified 
        as pertaining to architecture services),'' after ``(if 
        identified as pertaining to mapping services),''.
  (d) Reports to Congress.--
          (1) In general.--Section 716 of the Small Business 
        Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 
        644 note; 102 Stat. 3893) is amended--
                  (A) in subsection (a), by striking ``fiscal year 1991 
                and 1995'' and inserting ``each of fiscal years 1991 
                through 1999'';
                  (B) in subsection (a), by striking ``results'' and 
                inserting ``cumulative results''; and
                  (C) in subsection (c), by striking ``1996'' and 
                inserting ``1999''.
          (2) Cumulative report through fiscal year 1995.--A cumulative 
        report of the results of the Small Business Competitiveness 
        Demonstration Program for fiscal years 1991 through 1995 shall 
        be submitted not later than 60 days after the date of the 
        enactment of this Act pursuant to section 716(a) of the Small 
        Business Competitiveness Demonstration Program Act of 1988 (15 
        U.S.C. 644 note; 102 Stat. 3893), as amended by paragraph (1) 
        of this subsection.

SEC. 109. AMENDMENT TO SMALL BUSINESS GUARANTEED CREDIT ENHANCEMENT ACT 
                    OF 1993.

  (a) Section 7 of the Small Business Guaranteed Credit Enhancement Act 
of 1993 (Public Law 103-81; 15 U.S.C. 634 note) is repealed effective 
September 29, 1996.
  (b) Clerical Amendment.--The table of contents for the Small Business 
Guaranteed Credit Enhancement Act of 1993 (Public Law 103-81; 15 U.S.C. 
631 note) is amended by striking the item relating to section 7.

SEC. 110. 1998 AUTHORIZATIONS.

  Section 20 (15 U.S.C. 631 note) is amended--
          (1) in subsection (p), by striking ``authorized for fiscal 
        year 1997'' and inserting ``authorized for each of fiscal years 
        1997 and 1998'';
          (2) by striking subsection (p)(3)(B) and by inserting the 
        following:
                  ``(B) $268,000,000 in guarantees of debentures; 
                and'';
          (3) in subsection (q)(1) by striking ``fiscal year 1997'' and 
        inserting ``each of fiscal years 1997 and 1998''; and
          (4) in subsection (q)(2) by striking ``year 1997'' and 
        inserting ``years 1997 and 1998''.

SEC. 111. LEVEL OF PARTICIPATION FOR EXPORT WORKING CAPITAL LOANS.

  Section 7(a)(2) (15 U.S.C. 636(a)(2)) is amended by adding at the end 
the following:
                  ``(D) Participation under export working capital 
                program.--Notwithstanding subparagraph (A), in an 
                agreement to participate in a loan on a deferred basis 
                under the Export Working Capital Program established 
                pursuant to paragraph (14)(A), such participation by 
                the Administration shall be equal to the rate specified 
                under this paragraph as in effect on the day before the 
                date of the enactment of the Small Business Lending 
                Enhancement Act of 1995.''.

         TITLE II--AMENDMENTS TO SMALL BUSINESS INVESTMENT ACT

SEC. 201. REFERENCES.

  Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Small Business 
Investment Act of 1958 (15 U.S.C. 661 et seq.).

SEC. 202. MODIFICATIONS TO DEVELOPMENT COMPANY DEBENTURE PROGRAM.

  (a) Decreased Loan to Value Ratios.--Section 502(3) (15 U.S.C. 
696(3)) is amended to read as follows:
          ``(3) Criteria for assistance.--
                  ``(A) In general.--Any development company assisted 
                under this section or section 503 of this title must 
                meet the criteria established by the Administration, 
                including the extent of participation to be required or 
                amount of paid-in capital to be used in each instance 
                as is determined to be reasonable by the 
                Administration.
                  ``(B) Community injection funds.--
                          ``(i) Sources of funds.--Community injection 
                        funds may be derived, in whole or in part, 
                        from--
                                  ``(I) State or local governments;
                                  ``(II) banks or other financial 
                                institutions;
                                  ``(III) foundations or other not-for-
                                profit institutions; or
                                  ``(IV) the small business concern (or 
                                its owners, stockholders, or 
                                affiliates) receiving assistance 
                                through a body authorized by this 
                                title.
                          ``(ii) Funding from institutions.--Not less 
                        than 50 percent of the total cost of any 
                        project financed pursuant to clauses (i), (ii), 
                        or (iii) of subparagraph (C) shall come from 
                        the institutions described in subclauses (I), 
                        (II), and (III) of clause (i).
                  ``(C) Funding from a small business concern.--The 
                small business concern (or its owners, stockholders, or 
                affiliates) receiving assistance through a body 
                authorized by this title shall provide--
                          ``(i) at least 15 percent of the total cost 
                        of the project financed, if the small business 
                        concern has been in operation for a period of 2 
                        years or less;
                          ``(ii) at least 15 percent of the total cost 
                        of the project financed if the project involves 
                        the construction of a limited or single purpose 
                        building or structure;
                          ``(iii) at least 20 percent of the total cost 
                        of the project financed if the project involves 
                        both of the conditions set forth in clauses (i) 
                        and (ii); or
                          ``(iv) at least 10 percent of the total cost 
                        of the project financed, in all other 
                        circumstances, at the discretion of the 
                        development company.''.
  (b) Guarantee Fee for Development Company Debentures.--Section 
503(b)(7)(A) (15 U.S.C. 697(b)(7)(A)) is amended by striking ``0.125 
percent'' and inserting ``0.8125 percent''.
  (c) Fees To Offset Subsidy Cost.--Section 503(d) (15 U.S.C. 697(d)) 
is amended to read as follows:
  ``(d) Charges for Administration Expenses.--
          ``(1) Level of charges.--The Administration may impose an 
        additional charge for administrative expenses with respect to 
        each debenture for which payment of principal and interest is 
        guaranteed under subsection (a).
          ``(2) Participation fee.--The Administration shall also 
        impose a one-time fee of 50 basis points on the total 
        participation in any project of any institution described in 
        subclause (I), (II), or (III) of section 502(3)(B)(i). Such fee 
        shall be imposed only when the participation of the institution 
        will occupy a senior credit position to that of the development 
        company. Such fee shall be collected by the development 
        company, forwarded to the Administration, and used to offset 
        the cost (as such term is defined in section 502 of the Credit 
        Reform Act of 1990) to the Administration of making guarantees 
        under subsection (a).
          ``(3) Development company fee.--The Administration shall 
        collect annually from each development company a fee of 0.125 
        percent of the outstanding principal balance of any guaranteed 
        debenture authorized by the Administration after September 30, 
        1996. Such fee shall be derived from the servicing fees 
        collected by the development company pursuant to regulation, 
        and shall not be derived from any additional fees imposed on 
        small business concerns. All proceeds of the fee shall be used 
        to offset the cost (as such term is defined in section 502 of 
        the Credit Reform Act of 1990) to the Administration of making 
        guarantees under subsection (a).''.
  (d) Effective Date.--Section 503 (15 U.S.C. 697) is amended by adding 
at the end the following:
  ``(f) Effective Date.--The fees authorized by subsections (b) and (c) 
shall apply to financings approved by the Administration on or after 
October 1, 1996, but shall not apply to financings approved by the 
Administration on or after October 1, 1997.''.

SEC. 203. REQUIRED ACTIONS UPON DEFAULT.

  Section 503 (15 U.S.C. 697) is amended by adding at the end the 
following:
  ``(g) Required Actions Upon Default.--
          ``(1) Deadlines.--
                  ``(A) Initial actions.--Not later than the 45th day 
                after the date on which a payment on a loan funded 
                through a debenture guaranteed under this section is 
                due and not received, the Administration shall--
                          ``(i) take all necessary steps to bring such 
                        a loan current; or
                          ``(ii) implement a formal written deferral 
                        agreement.
                  ``(B) Purchase or acceleration of debenture.--Not 
                later than the 65th day after the date on which a 
                payment on a loan described in subparagraph (A) is due 
                and not received, and absent a formal written deferral 
                agreement, the Administration shall take all necessary 
                steps to purchase or accelerate the debenture.
          ``(2) Prepayment penalties.--The Administration shall, with 
        respect to the portion of any project derived from funds set 
        forth in section 502(3)--
                  ``(A) negotiate the elimination of any prepayment 
                penalties or late fees on defaulted loans made prior to 
                September 30, 1996;
                  ``(B) decline to pay any prepayment penalty or late 
                fee on the default based purchase of loans issued after 
                September 30, 1996; and
                  ``(C) for any project financed after September 30, 
                1996, decline to pay any default interest rate higher 
                than the interest rate on the note prior to the date of 
                default.''

SEC. 204. LOAN LIQUIDATION PILOT PROGRAM.

  (a) In General.--The Administrator shall carry out a loan liquidation 
pilot program (in this section referred to as the `pilot program') in 
accordance with the requirements of this section.
  (b) Selection of Development Companies.--Not later than 90 days after 
the date of the enactment of this Act, the Administrator shall allow 
not less than 15 development companies authorized to make loans and 
issue debentures under title V of the Small Business Investment Act of 
1958 to participate in the pilot program. The development companies 
admitted shall agree not to take any action that would create a 
potential conflict of interest involving the development company, the 
third party lender, or an associate of the third party lender. In order 
to qualify to participate in the pilot, each development company 
shall--
          (1) have a minimum of 6 years experience in the program 
        established by such title V;
          (2) have made, during the last 6 fiscal years, an average of 
        10 loans per year through the program established by such title 
        V; and
          (3) have a minimum of 2 years experience, either 
        independently or through an agent, in liquidating loans under 
        the authority of a Federal, State, or other lending program.
  (c) Authority of Development Companies.--The development companies 
selected under subsection (b) shall, for all loans in their portfolio 
of loans made through debentures guaranteed under title V of the Small 
Business Investment Act of 1958 that are in default after the date of 
enactment of this Act, be authorized to--
          (1) perform all liquidation and foreclosure functions, 
        including the acceleration or purchase of community injection 
        funds; and
          (2) liquidate such loans in a reasonable and sound manner and 
        according to commercially accepted practices.
  (d) Authority of the Administrator.--In carrying out the pilot 
program, the Administrator shall--
          (1) have full authority to deny participation in the pilot 
        program or rescind the authority granted any development 
        company under this section upon a 10 day written notice stating 
        the reasons for the denial or rescission; and
          (2) implement the pilot program no later than 90 days after 
        the admission of the development companies specified in 
        subsection (b).
  (e) Report.--
          (1) In general.--The Administrator shall issue a report on 
        the results of the pilot program to the Committees on Small 
        Business of the House of Representatives and the Senate. The 
        report shall include information relating to--
                  (A) the total dollar amount of each loan and project 
                liquidated;
                  (B) the total dollar amount guaranteed by the 
                Administration;
                  (C) total dollar losses;
                  (D) total recoveries both as percentage of the amount 
                guaranteed and the total cost of the project; and
                  (E) a comparison of the pilot program information 
                with the same information for liquidation conducted 
                outside the pilot program over the period of time.
          (2) Reporting period.--The report shall be based on data 
        from, and issued not later than 90 days after the close of, the 
        first eight 8 fiscal quarters of the pilot program's operation 
        after the date of implementation.

SEC. 205. REGISTRATION OF CERTIFICATES.

  (a) Certificates Sold Pursuant to Small Business Act.--Section 5(h) 
of the Small Business Act (15 U.S.C. 634(h)) is amended--
          (1) by redesignating paragraphs (1) through (4) as 
        subparagraphs (A) through (D);
          (2) by striking ``(h)'' and inserting ``(h)(1)'';
          (3) by striking subparagraph (A), as redesignated by 
        paragraph (1) of this subsection, and inserting the following:
          ``(A) provide for a central registration of all loans and 
        trust certificates sold pursuant to subsections (f) and (g) of 
        this section;''; and
          (4) by adding at the end the following:
  ``(2) Nothing in this subsection shall prohibit the utilization of a 
book entry or other electronic form of registration for trust 
certificates. The Administration may, with the consent of the Secretary 
of the Treasury, use the book-entry system of the Federal Reserve 
System.''.
  (b) Certificates Sold Pursuant to Small Business Investment Company 
Program.--Section 321(f) (15 U.S.C. 6871(f)) is amended--
          (1) in paragraph (1) by striking ``Such central registration 
        shall include'' and all that follows through the period at the 
        end of the paragraph; and
          (2) by adding at the end the following:
  ``(5) Nothing in this subsection shall prohibit the use of a book-
entry or other electronic form of registration for trust 
certificates.''.
  (c) Certificates Sold Pursuant to Development Company Program.--
Section 505(f) (15 U.S.C. 697b(f)) is amended--
          (1) by redesignating paragraphs (1) through (4) as 
        subparagraphs (A) through (D);
          (2) by striking ``(f)'' and inserting ``(f)(1)'';
          (3) by striking subparagraph (A), as redesignated by 
        paragraph (1) of this subsection, and inserting the following:
          ``(A) provide for a central registration of all trust 
        certificates sold pursuant to this section;'' and
          (4) by adding at the end the following:
  ``(2) Nothing in this subsection shall prohibit the utilization of a 
book entry or other electronic form of registration for trust 
certificates.''.

SEC. 206. PREFERRED SURETY BOND GUARANTEE PROGRAM.

  (a) Admissions of Additional Program Participants.--Section 411(a) 
(15 U.S.C. 694(a)) is amended by adding a new paragraph (5), as 
follows:
  ``(5)(A) The Administration shall promptly act upon an application 
from a surety to participate in the Preferred Surety Bond Guarantee 
Program, authorized by paragraph (3), in accordance with criteria and 
procedures established in regulations pursuant to subsection (d).
  ``(B) The Administration is authorized to reduce the allotment of 
bond guarantee authority or terminate the participation of a surety in 
the Preferred Surety Bond Guarantee Program based on the rate of 
participation of such surety during the 4 most recent fiscal year 
quarters compared to the median rate of participation by the other 
sureties in the program.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply with respect to applications received (or pending substantive 
evaluation) on or after October 1, 1995.

                          Purpose of the Bill

     The primary purpose of the bill is to reform the loan 
programs found in Section 7(a) of the Small Business Act, P.L. 
83-163, 15 U.S.C. Sec. 631, et seq., and Section 503 of the 
Small Business Investment Act of 1958, P.L. 85-699, 15 U.S.C. 
Sec. 661, et seq., in order to reduce the subsidy rates of 
these programs and to strengthen the underwriting of loans 
guaranteed through the Small Business Administration (SBA).
     The bill reduces the substantial subsidy rate for the 
disaster assistance loan program by slightly increasing the 
interest rate in that program.
     Finally, the bill makes reforms to a number of other 
programs at the Small Business Administration, and removes 
various obsolete provisions and programs in the Small Business 
Act. The bill also requires a number of improvements in, and 
reports and studies on, the Small Business Administration's 
management practices and systems.

                          Need for Legislation

                               in general

     In October of 1995, the President signed into law P.L. 
104-36, the Small Business Lending Enhancement Act of 1995. 
This law was designed to lower the subsidy rate of the 7(a) and 
504 programs to reduce substantially the cost of the programs 
to the taxpayer. The subsidy rate for the 7(a) program was 
decreased by approximately 60 percent, from 2.74 percent to 
1.06 percent. The subsidy rate for the 504 program was reduced 
to zero, effectively making it a self-financed program. The 
legislation was drafted and passed relying on estimates and 
information provided by the Office of Management and Budget and 
the Small Business Administration.
     Under P.L. 10-436, the Small Business Administration was 
to be able to operate its loan programs at a significantly 
reduced cost. As a result, fewer funds were appropriated for 
the 7(a) program in 1996, and no funds were appropriated for 
the 504 program. Congress appropriated $114.5 million to fund 
the 7(a) program at a lending level of $11 billion. Currently, 
program demand for fiscal year 1996 is estimated to be 
approximately $8.75 billion in lending authority. At the 
assumed subsidy rate of 1.06 percent, this would cost $92 
million, allowing a carryover of approximately $22.5 million.
     Unfortunately, in March of 1996, on the eve of the release 
of the President's Budget for fiscal year 1997, the Committee 
learned for the first time that the subsidy rates for the 7(a) 
and 504 programs had been recalculated and had increased 
significantly. This recalculation was the result of a Small 
Business Administration and Office of Management and Budget 
study of portfolio performance in the programs over the past 13 
years. The result was an estimated subsidy rate for the 7(a) 
lending program of 2.68 percent, almost the same rate as that 
used prior to the enactment of P.L. 10-436. In the case of the 
504 program, the increase was more than twelvefold, from the 
fiscal year 1996 estimated rate of 0.57 (prior to enactment of 
P.L. 104-36) to the fiscal year 1997 estimated rate of 6.85 
percent.
     This information provoked a strong response from the 
Committee. Despite repeated Committee inquiries to the 
Administration for information on ``rumored'' increases in the 
subsidy rates, the SBA refused to come forward with this 
information, even though it was available for months prior to 
the release of the President's Budget. Compared to the previous 
subsidy rate of 1.06 percent, the newly assigned subsidy rate 
of 2.68 percent would require $234 million to accomplish the 
same amount of small business lending in fiscal year 1997, more 
than twice the fiscal year 1996 appropriation. For the 504 
program to continue at all would require an appropriation of 
approximately $112 million, all of it new money. Further 
compounding this disturbing lack of cooperation by the Agency 
was the Administration's response to this problem.
     The Administration's ``solution'' to this fiscal crisis, 
as embodied in the President's Budget, was simply to request 
more money and deny any responsibility for creating or 
contributing to this dilemma. To cover the projected shortfall 
in the 7(a) program, and assuming an increased program level of 
$12 billion, the Administration requested an additional $180 
million for the program. This represents an increase of 160 
percent over the previous year's appropriations. While the 
Committee recognizes the value of the program in providing 
long-term financing to small businesses, the Administration's 
response is remarkably insufficient considering current fiscal 
realities and the President's commitment to help Congress 
balance the budget by the year 2002.
     The Administration also proposed turning the 504 program 
into a direct financing program. Converting 504 to a direct 
lending program would wipe out the private market partnership 
that has developed in this program over the past ten years. In 
addition, it would be very difficult, and perhaps impossible, 
to bring the private market back into financing the 504 program 
if it were so abruptly removed now as a short-term fix for the 
subsidy rate. Furthermore, the Committee strongly rejected this 
notion as a budget ``loophole'' in which guaranteed lending 
with a substantial subsidy rate is suddenly scored with a zero 
subsidy when branded a ``direct loan'' program. Such a proposal 
suggests that the best response to the failures in collections 
and defaults is to hide the problem by containing it within the 
Federal bureaucracy.
     The Committee's approach was substantially different from 
that proposed by the Administration, in that the Committee took 
a determined view that the causes of these subsidy rate 
fluctuations should be identified, and that legislation should 
address these causes, rather than ``patch'' the problem with 
higher fees for a temporary drop in the subsidy rate. New fees 
have been added to the 7(a) program over the past three years, 
only to have the subsidy rate return to its ``pre-fee'' state. 
The Committee believes that the point may have already been 
reached where additional fees render the 7(a) program 
undesirable, for borrowers and lenders, as the demand for 7(a) 
loans for fiscal year 1996 is running much lower than the 
anticipated $10 billion lending level. Legislation that 
provides long-term solutions to the problems plaguing the loan 
programs is important for stability and long-term viability of 
the loan programs.
     After reviewing the President's Budget for fiscal year 
1997, and testimony presented before the Committee regarding 
the SBA Budget for fiscal year 1997, the Committee began a 
series of meetings with the SBA, OMB, and with various private-
sector lending partners. The purpose of these meetings was to 
try to identify the problems, and the causes of these problems, 
that are contributing to the dramatic increases in the subsidy 
rates for the major SBA programs. One problem that was clearly 
identified was a need for better data collection. The Agency 
must be able to conduct more detailed portfolio analyses on an 
ongoing basis to identify potential problems at an early date. 
Another significant management problem is SBA's liquidation 
practices. Recovery rates are down substantially in nearly 
every major loan program. Perhaps more than any other factor, 
the recovery rate is a key component of the subsidy rate 
calculation. The tremendous time lag for conducting 
liquidations, exacerbated by a lack of adequate field staff 
designated for this purpose, is certainly one reason for lower 
recoveries. Finally, the Committee continues to be puzzled by 
the subsidy rate calculations of OMB. While the default and 
recovery rates are clearly major components of the 
calculations, OMB analysts also factor in other ``intangible'' 
items. These items, which are not disclosed to the Committee, 
can change from day to day, calculation to calculation, in such 
a way that the Committee has come to question the objectivity 
and accuracy of these subsidy rate calculations.

                      changes to the 7(a) program

     The changes in this bill will strengthen the 7(a) program 
by moving more functions to the private sector and relying on 
the SBA's most experienced lending partners to carry out these 
functions. The bill provides that Preferred Lenders (PLPs) will 
be allowed to have full loan liquidation authority, free from 
unnecessary delays that now occur due to the Administration's 
insistence upon a lengthy review and approval process for each 
individual step taken in the course of a liquidation. Anecdotal 
evidence presented to the Committee indicates that the SBA is 
micro-managing the PLP liquidation process so as to render it 
virtually useless as a tool for achieving program efficiencies. 
The Committee intends to restore that tool. The 
Administration's stubborn resistance to change in the 
liquidation arena is very troubling to the Committee, 
particularly as it appears to be a common thread of dysfunction 
running through the loan programs. Therefore, the Committee 
intends to monitor closely the Administration's adoption and 
acceptance of these mandated changes in liquidation practices.
     The Committee also places a restriction on the use of the 
Low-Doc program. This program will henceforth be available only 
to the Preferred and Certified Lending institutions, or to 
lenders with significant small business lending experience. The 
Committee believes that this is a prudent step, given the rapid 
growth of this Administration-inspired pilot program, and is 
based upon the Administration's own guidelines for the Low-Doc 
program, which state that Low-Doc is for use by the SBA's most 
experienced lending partners. Currently, the noncurrency rate 
for Low-Doc is higher than for the non-Low-Doc portfolio. This 
points to possible underwriting problems, problems that may be 
attributable, in part, to the dramatic number of lenders using 
Low-Doc who have not previously participated in SBA lending 
programs.
     The purpose of the Low-Doc program is to provide a 
simplified loan application process for the borrower, not to 
alleviate underwriting and due diligence requirements for 
lenders seeking entry into the 7(a) program. The 7(a) program 
remains open to any lender, rural or urban, small or large, 
through the general lending program. The Committee is 
concerned, however, that the Low-Doc program, coupled with 
District Office lending goals for minority and women borrowers, 
is a potentially dangerous situation in which Low-Doc may be 
evolving into a ``quota lending'' program. It is only in the 
past few months that the Committee has confirmed the existence 
of these lending goals. The Committee learned, and the Agency 
confirmed, that it prepares, using census data for the 
geographic area covered by a District Office, a specific goal 
for the number of loans each District Office must make to small 
business owners of certain ethnic backgrounds, such as African 
Americans, Hispanic Americans, and Native Americans, and to 
women. Meeting these goals is a critical factor in the 
performance evaluation of each District Director. However, the 
Committee notes that the Agency does not set such stringent 
goals for portfolio performance for the District Offices. 
Quantity lending goals without quality goals with equal weight 
in the performance evaluations is a recipe for disaster. The 
Committee expects the Agency to remedy this situation 
immediately by either eliminating lending goals for the 
District Offices, as these goals may place undue pressure on 
SBA personnel to approve loans for reasons other than the 
borrower's creditworthy status, or by implementing strong goals 
for portfolio quality, such as high currency rates.
    Finally, the Committee seeks to establish some discipline 
in the granting of the Federal guarantee through the imposition 
of reductions in the interest rates and servicing fees paid to 
borrowers on defaulted loans. The Committee reasons that a 
lender who has committed the Small Business Administration to a 
loan that defaults is not entitled to a full servicing fee or 
the full interest rate on that loan from the time of default to 
the time it is paid off by the Administration. The Committee 
believes that rather than producing a hesitancy in lenders to 
aid small business under this program, it will instead 
encourage more cooperation and assistance from the lender in 
order to aid the small business to succeed. The incentives are 
clear: aiding a small business borrower generates a grateful 
and successful future client.
     These changes are necessary to instill a sense of 
commitment in all parties to this program. The Administration 
is asked to relinquish some control in order to gain willing 
and strong lending partners. The lending community, in turn is 
asked to exercise its powers to ensure the continued viability 
of the program by aiding its partners, the small business 
borrowers, and by working to gain experience and knowledge of 
the program in order to gain its full benefits.

                       changes to the 504 program

    As stated above, the Congress relied on information from 
the Small Business Administration and the Office of Management 
and Budget in order to set additional fees that would reduce 
the subsidy rate in the 504 program to zero, creating an 
essentially self-funded program. Unfortunately, the OMB review 
again revealed the actual subsidy rate would be far higher.
    Because no funds were appropriated for this program in 
fiscal year 1996, all the costs from the mistaken subsidy rate 
will be added to the deficit. As a result, the Small Business 
Administration is obligated for funds well in excess of the 
amounts appropriated. This means that the taxpayers could 
ultimately face millions of additional dollars added directly 
to the Federal deficit when the shortfall comes due in the 
future.
    The Committee believes that a better solution exists than 
the Administration's proposal of converting the 504 program to 
a direct-lending program. This solution is to increase fees 
temporarily in the 504 program, distributing this burden among 
the borrower, the first mortgage holder, and the certified 
development company. In addition, the Committee requires 
changes to the underwriting and management of this loan program 
in the belief that such improvements though not be reflected 
immediately in the subsidy rate will eventually bring defaults 
down and increase recoveries. The most experienced certified 
development companies will be allowed to perform, on a pilot 
basis, liquidation and collection functions. The Committee 
expects the SBA to make a genuine, good faith effort to 
facilitate this pilot and cooperate fully with those 
development companies in the pilot program. The Committee 
believes that the certified development companies may be more 
efficient in liquidating than the SBA, and they certainly have 
a vested interest in seeing increased recovery rates, as it is 
a central component of the subsidy rate.
    The Committee also notes that, despite the evidence of 
losses far in excess of those anticipated, and despite evidence 
that information on these losses was neither collected nor 
collated in a fashion designed to inform the management of the 
impending problems, no actions have been taken to discipline 
the career staff responsible. In fact, the Administration's 
proposed liquidation improvement does not clearly address the 
lack of careful data collection required to monitor this 
program. The Committee believes that the management information 
system required in this bill will address this oversight.

               Changes to the Disaster Assistance Program

    The Administration originally requested that the interest 
rate for disaster assistance loans be increased from the 
current one-half of the Treasury rate for securities of similar 
duration to the full Treasury rate. While this provision was 
originally included in the bill, the Committee felt that such a 
large increase in the interest rate may force an undue hardship 
on disaster victims without credit available elsewhere. 
Consequently, the bill, by bipartisan agreement, increases the 
rate to three-fourths of the Treasury rate. The Committee 
recognizes the balance that must be achieved between fiscal 
responsibility and the desire to aid our citizens in need. The 
Committee also agrees that despite the ongoing arguments 
regarding the proper role of government in the lives of our 
citizens, disaster assistance is one of the few clear cut areas 
in which the government should act. The Committee, therefore, 
declines to push the interest rate higher, despite the 
Administration's proposal.
    The Committee also initiates a pilot program for the 
servicing and liquidation of disaster assistance loans. The 
Committee believes it is appropriate to begin privatizing this 
function in light of the character of the portfolio. Most of 
the disaster assistance loans made by the SBA are for repair 
and replacement of homes, and the terms of the loans often 
stretch twenty to thirty years. This is, in essence, mortgage 
lending, an industry that is heavily modernized and efficiently 
operated by the private sector. The Committee, therefore, 
believes it is appropriate to explore the potential for private 
sector servicing of the disaster loan portfolio.

                    Changes to the Microloan Program

    The Committee has become aware of actions taken by the 
Administration to spread access to technical assistance grant 
funds more equitably within the microlending community. It is 
apparent that the microlenders who apply for grants early in 
the year are given the full apportionment of grant funds 
permitted under the statute. Unfortunately, this often means 
that intermediaries that apply for grants later in the year are 
left with only minimal funds due to shortfalls. The timing of 
eligibility for applications is based on the date of acceptance 
of an intermediary. This results in intermediaries being forced 
into applying late in the fiscal year due to no fault of their 
own. The Committee, therefore, proposes changes allowing for a 
more equitable distribution of these funds to all 
intermediaries. By lowering the maximum amount available to 
all, the Committee hopes to prevent unfairness to some.
    The Committee also notes the lack of effort made by the SBA 
on the Microloan Guarantee Pilot Program and is surprised that 
the SBA should so readily ignore both the statutory mandate and 
the recommendations of the National Performance Review. The 
Committee has yet to receive any formal explanation of the lack 
of progress in this pilot program. As a result, this bill 
requests that the Administration either implement the pilot 
program or report on its inability to implement.

                   Small Business Development Centers

    The Administration proposed in the reinvention proposal of 
March, 1995, to consolidate the Small Business Development 
Center (SBDC) Program with the Women's Demonstration and 
Minority-Owned Business Technical Assistance Programs. The 
SBA's plan would include placing primary responsibility for 
management and oversight of the SBDCs with the District 
Offices, and gradually increasing the state and local fund 
match from the current $1 dollar for every $1 dollar in federal 
grant, to a 3 to 1 formula, reducing the federal contribution. 
These changes, which SBA planned to implement at the beginning 
of fiscal year 1997, also would provide authority for SBDCs to 
charge fees for counseling and other services.
    The Committee rejects the SBA's plan to move oversight 
authority over the SBDCs to the District Offices, and 
statutorily creates the Office of Associate Administrator for 
Small Business Development Centers who shall be solely 
responsible for administering the program. The Associate 
Administrator is required to consult Administration officials 
in the areas served by SBDCs; however, the management and 
administration of the program shall not be subject to the 
approval or concurrence of these officials. While the Committee 
understands the importance of having local input to ensure the 
SBDC networks serve the communities in which they are located, 
problems have arisen under the current policy in which district 
office personnel must concur with the directives of the 
Associate Administrator. Issues requiring timely action have 
sometimes taken months, and in some cases years, to resolve. 
The Committee believes these delays threaten the quality of the 
SBDC program and the services it provides to small businesses, 
thus prompting this provision.

          Small Business Competitiveness Demonstration Program

    The Small Business Competitiveness Demonstration Program 
(SBCDP) was initially authorized by Title VII of P.L. 100-656, 
the Business Development Opportunity Reform Act. The purpose of 
the SBCDP was to assess the ability of small businesses in four 
small business-dominated industry groups to compete 
successfully for Federal prime contract opportunities without 
the use of small business ``set-asides'' (competitions 
restricted to small firms). The four designated industry groups 
are: construction (other than dredging); architectural-
engineering services (including surveying, mapping, and 
landscape architecture); refuse systems and related services; 
and non-nuclear ship repair. Under the program, contracting 
opportunities for these services are solicited and awarded 
through full and open competition as long as the rate of small 
business participation remains at or above 40 percent. The 40-
percent threshold was selected because it represents twice the 
statutory goal for small business participation required by 
Section 15(g) of the Small Business Act. To provide protection 
to small firms in the Designated Industry Groups, the program 
requires the re-imposition of small business set-aside 
competitions if the small business participation rate falls 
below the threshold and they are continued until the 40 percent 
participation rate is again attained. Changes in competition 
practices, as appropriate, are made on a quarterly basis.
    The SBCDP requires participation by those ten Departments 
or agencies that are the largest buyers in the Federal 
procurement system. Currently, the ten are: the Departments of 
Agriculture, Defense, Energy, Health and Human Services, 
Transportation, and Veterans Affairs, as well as the General 
Services Administration, the National Aeronautics and Space 
Administration, and the Environmental Protection Agency. In the 
aggregate, the procurement programs of these departments and 
agencies account for more than 90 percent of all procurement 
dollars spent annually. The statute authorized the 
Administrator for Federal Procurement Policy to specify 
additional Executive agencies as part of the published test 
plan for the program. None was so designated.
    As an integral component of the SBCDP, participating 
agencies were directed to re-focus their small business 
advocacy resources to other industry groups that have 
historically had relatively low rates of small business 
participation in Federal contracting opportunities, despite 
substantial small business capacity in the private sector. 
Under the program, participating agencies are required to 
designate 10 such Targeted Industry Groups, and fashion 
programs to expand small business participation in them. Such 
programs to expand participation within the Targeted Industry 
Groups are developed by each participating agency, tailored to 
its procurement activities. SBA assists and reviews the 
individual programs proposed by the participating agencies.
    The SBCDP was previously extended for a four-year period by 
Section 201 of P.L. 102-366, the Small Business Credit and 
Business Opportunity Enhancement Act of 1992. This action was 
taken based on the comprehensive program report received from 
the Office of Federal Procurement Policy in December 1993, 
which covered the period January 1, 1989 through September 30, 
1992. That report demonstrated strong small business 
participation through full and open competition with respect to 
three of the four Designated Industry Groups. Severe reporting 
problems were identified regarding architectural and 
engineering services (A-E services). These reporting problems 
tended to obscure the program's performance with respect to A-E 
Services, but even the incomplete data showed a positive trend.
    The same report showed very little progress with respect to 
expanding small business participation within the various 
Targeted Industry Groups. Additional experience was clearly 
called for with respect to this important element of the SBCDP.
    Since the cumulative and comprehensive report received in 
December 1993, the Committee has received only preliminary data 
regarding fiscal years 1993, 1994, and 1995. That data seems to 
suggest that small business competitiveness remains strong 
within the four Designated Industry Groups, with A-E services 
showing the most difficulties in meeting the 40 percent small 
business participation rates. Small business set-aside 
competitions have been re-imposed when appropriate to protect 
small business participation.
    The bill provides for an additional four-year extension of 
the SBCDP from is current expiration on September 30, 1996 to 
September 30, 2000. The Committee believes that this extension 
will provide additional time for the participating agencies to 
be more creative regarding expanding small business 
participation within the Targeted Industry Groups and to 
measure, on a long-term basis, the ability of small firms in 
the Designated Industry Groups to succeed in the Government 
prime contract market without the use of set-aside 
competitions. It will also provide additional time to obtain 
clearer data regarding the competitiveness of firms providing 
A-E services.
    The 1992 reauthorization of the program directed the 
conduct of a data collection effort to capture the full range 
of small business subcontracting in the Designated Industry 
Group of A-E services. Unfortunately, it still has not been 
implemented. The bill again directs such an addition to the 
overall SBCDP.
    The objectives and intended implementation of this enhanced 
subcontracting reporting system were described in the section-
by-section analysis accompanying the Section 202(d) of P.L. 
102-366. Subsection 202(h) of P.L. 102-366 also sought to 
encourage the implementation of the subcontract reporting 
system required by subsection (d) of that Act (as well as the 
improved data collection with respect to A-E services required 
by subsection (g) of that Act), by adjusting the threshold 
relating to A-E services. The threshold for A-E services would 
be 35 percent until these directed program management 
improvements were implemented. The Committee finds that the 
adjusted 35 percent threshold with respect to A-E services 
remains in effect.
    The bill makes other amendments to the SBCDP that can be 
fairly characterized as technical in nature. For example, the 
bill adds a reference to landscape architecture to the SBCDP's 
definition of ``architectural and engineering services'' and 
the related citations to A-E services throughout the program's 
authorizing statute. This amendment is intended to recognize 
changes being made to the Standard Industrial Classification 
(SIC) Code system as it changes to its proposed successor, the 
North American Industrial Classification System.
    Committee deliberations on the SBCDP were hampered by lack 
of data on the recent performance of the program. Reporting 
obligations under the program were transferred to the SBA by 
the Office of Federal Procurement Policy (OFPP). Due to the 
restructuring of the entire Office of Management and Budget 
(OMB) under ``OMB 2000,'' the personnel resources of OFPP were 
reduced by approximately 50 percent. OFPP no longer possessed 
the professional staff to undertake the labor-intensive task of 
compiling and analyzing the data collected under the program. 
The data is collected from the participating agencies as part 
of the routine reporting of their procurement activities 
through the Federal Procurement Data System (FPDS).
    The bill also amends the SBCDP's reporting requirements to 
assure cumulative reporting is available in the future. This 
will assist Congress and industry in reaching judgments about 
the program.
    Finally, the bill requires the submission of a cumulative 
report regarding the program's performance through fiscal year 
1995 within 60 days after the date of enactment. Under the 1992 
reauthorization legislation, a report was due to the Congress 
180 days after the availability of FPDS data for fiscal year 
1995, or approximately June 30, 1996.

                Preferred Surety Bond Guarantee Program

    The Preferred Surety Bond Guarantee (SBG) Program was 
authorized by Title II of P.L. 100-590, the Small Business 
Administration Reauthorization and Amendment Act of 1988. The 
fundamental objective of the Preferred SBG Program is to 
encourage the renewed participation of the large, so-called 
``standard'' surety firms in the SBA SBG Program. A Preferred 
Surety, unlike a participant in the basic Prior-Approval SBG 
Program, is authorized to issue a bond with a Federal 
Government guarantee without obtaining SBA's prior-approval for 
each bond. Prior to designation as a Preferred Surety, SBA 
reviews the surety's basic business procedures regarding 
underwriting and administration of surety bonds that it 
provides in its general course of surety business. A Preferred 
Surety is required to use these same procedures in the 
underwriting of surety bonds with a Federal Government 
guarantee. In exchange for the freedom to issue government-
guaranteed bonds using the firm's standard procedures, the 
government-guarantee percentage applicable to a bond issued by 
a Preferred Surety is limited to 70 percent (rather than the 90 
percent maximum guarantee available in the Prior-Approval 
Program).
    In order to preserve the role of the so-called ``specialty 
sureties'' that are the mainstay of the SBA SBG Program, 
bonding authority has been allocated between the two programs 
on approximately 60-40 split, with the larger share going to 
the specialty sureties in the Prior-Approval SBG Program. 
Because of this allocation, no additional participants have 
been admitted to the Preferred SBG Program, despite pending 
applications from several firms urging that they will be active 
participants. Despite having several persistently inactive 
Preferred Sureties, SBA program staff maintains that they 
currently lack statutory or regulatory authority to terminate a 
Preferred Surety simply on the basis of low (or no) 
participation. The bill provides that authority.
    The Committee expects the SBA to amend the SBG Program's 
implementing regulations and standard operating procedures as 
soon as practicable. The Committee further directs that such 
amendments make explicit that SBA will generally approve (or 
disapprove) a complete application within 30 days. If the SBA 
is unable to take action within such 30-day period, the 
applicant will be notified in writing, specifying a date 
certain for action on the application and the reason why 
additional time is needed by the Administration. The Committee 
recognizes that under current regulations for the Preferred SBG 
Program, designation as a Preferred Surety is not effective 
until a mutually agreeable Preferred Surety Bonding Agreement 
is negotiated between the surety and SBA.
    The Committee emphasizes that the authority granted by new 
Section 411(a)(5)(B) of the Small Business Investment Act of 
1958, added by Section 206(a) of the bill is permissive and not 
mandatory. Specifically, the Committee directs that SBA 
implementation of this new statutory authority not be 
implemented in a manner that gradually eliminates all but the 
most active Preferred Sureties through a purely mechanistic 
application of the new statutory standard.
    The bill establishes the effective date of the amendment, 
making it applicable to applications pending on or after 
October 1, 1995. The Committee notes that the SBA has a number 
of applications pending, upon which no action has been taken.

                            Committee Action

    Two days after receipt of the President's Budget the 
Committee convened a hearing to discuss the implications of the 
increase in the subsidy rates and their effect upon the future 
of the 7(a) and 504 programs. At the hearing, SBA Administrator 
Philip Lader described the findings of the subsidy rate study 
that the Agency undertook ``* * * as a practice of 
conservative, responsible management,'' and that these 
findings, ``require that these programs'' subsidy rates be 
raised.'' The Administrator went on to describe the portfolio 
study, in which more than 600,000 loans and 25 million 
transactions were analyzed, as the most comprehensive loan 
portfolio study done by any major credit agency. The new 
subsidy rates, calculated from the results of the portfolio 
study, represented, ``a correction in the course set in 1991 
when SBA's first subsidy study was conducted,'' the 
Administrator commented. The Administrator further noted that 
``given the likely better performance of loans made in more 
recent years, the subsidy rate can probably be reduced over 
time.''
    Other witnesses presenting testimony before the Committee 
at the March 21, 1996 hearing, however, expressed concern, 
frustration, and a sense of ``deja vu'' over OMB's 
calculations, and the assumptions used in this calculation 
which seem to change from year to year. Mr. Anthony Wilkinson, 
President of the National Association of Government Guaranteed 
Lenders (NAGGL), testified that in months prior to the release 
of the President's Budget for fiscal year 1997, individual 7(a) 
lenders were told by OMB that the portfolio analysis indicated 
that the program's performance was slightly better than 
estimates and that the subsidy rate would decline slightly. 
This information was confirmed to Mr. Wilkinson by SBA 
officials in February 1996, only to have the 7(a) subsidy rate 
increase by 153 percent when the President's fiscal year 1997 
Budget was finally released on March 19, 1996.
    Mr. Ken Lueckenotte, testifying for the National 
Association of Development Companies (NADCO), echoed Mr. 
Wilkinson's frustration over these new subsidy rates, as 
NADCO's own analysis of the debenture portfolio revealed 
substantially different results from OMB's calculations. As Mr. 
Lueckenotte stated before the Committee, ``* * * the 504 
portfolio is performing up to market and commercial standards, 
both from the point of view of the institutional investors who 
purchase our securities in the private market each month, and 
in comparison to comparable commerical lending experience. If 
the quality of the portfolio measures up to market and 
commerical standards, how could OMB's calculations paint such a 
different picture?''
    The industry representatives for the 7(a) and 504 program 
were also united in their opposition to ``status quo'' 
operation of these loan programs. Both NAGGL and NADCO 
expressed a desire to get to the root of the problems in the 
loan programs that are causing continued upward spikes in the 
subsidy rates, and that action be taken to address the causes, 
not appropriate more money or create new fees that mask any 
management or underwriting failings in the programs'' 
operations.
    In the months following the March 21, 1996 hearing, 
Committee staff (both minority and majority) met with Small 
Business Administration officials and members of the lending 
community in order to identify program weaknesses and problems 
and to discuss possible options for addressing these problems. 
A large number of these options were presented to the SBA for 
analyses and preliminary scoring. While the SBA did not express 
support for many of these options, the discussions were 
essential to the crafting of the provisions included in the 
Small Business Programs Improvement Act of 1996, which was 
introduced on June 26, 1996 as H.R. 3719.
    The Committee met on July 10, 1996 to begin consideration 
of H.R. 3719. After opening statements, the Chair offered an 
amendment in the nature of a substitute that corrected 
technical and drafting errors and removed certain provisions 
that had the potential to violate certain provisions of the 
Credit Reform Act. The Chair and the Members began a discussion 
and consideration of the various provisions of the amendment in 
the nature of a substitute.
    During the discussion both Mr. LaFalce and Mr. Manzullo 
expressed concerns regarding the section in both the introduced 
bill and the substitute on non-judicial foreclosure. This 
provision was added by the Chair at the request of the 
Administration, and was provided by the Department of Justice. 
Unfortunately, the provision was drafted in a fashion that 
presented grave problems concerning rights of redemption, 
unfunded mandates, and an overall question of the wisdom of 
overriding the public policy of nearly half the states in the 
Union. Consequently, the Chair, by unanimous consent, struck 
the provision.
    The discussion and explanation of the bill's provisions 
concluded, at which time the Chair recessed the meeting. The 
meeting reconvened on Thursday July 18, 1996 and the amendment 
in the nature of a substitute was considered for amendment. Mr. 
LaFalce offered an en bloc amendment containing a number of 
changes that were reached with bipartisan agreement. The 
changes included modifications to the qualifications for Low-
Doc lenders, clarifications of the terms of the centralized 
loan center provision, implementation of the PLP Review 
program, the Disaster Loan Servicing pilot program, the 
Development Company Loan pilot program, and the interest rate 
provision for Disaster Loans. The en bloc amendment also 
contained language striking the provision regarding the Women's 
Demonstration Program. The compromise amendment was accepted by 
voice vote.
    Mr. Hefley then offered an amendment extending the ability 
to liquidate and service guaranteed loans to Certified Lenders. 
During discussion of the amendment Mr. LaFalce asked for 
clarification of the amendment's language. Mr. Hefley agreed to 
change the language to clarify the Administrator's ability to 
approve such authority. The change was incorporated without 
objection, at which point the amendment was put to a vote. Mr. 
Hefley's amendment passed by voice vote.
    Mr. Torkildsen then offered an amendment to direct the 
Administrator to, with assistance of the Office of Management 
and Budget, separately track the subsidy rate of the Low 
Documentation loan program. The amendment was passed by a voice 
vote.
    Mr. LaFalce then offered another compromise amendment on 
behalf of himself and Chair Meyers regarding the securitization 
of the non-guaranteed portion of guaranteed loans. After 
discussion between Mr. Bentsen and Mr. LaFalce concerning the 
possible negative effect of the amendment in its current form 
on existing participants, Mr. LaFalce agreed to change the 
amendment to reflect the ability of the Administration to 
require a loss reserve of up to ten percent when circumstances 
required, rather than the flat ten percent originally proposed. 
The amendment clarifies that SBA has the authority, if 
necessary, to require lenders securitizing the non-guaranteed 
portion of SBA 7(a) loans to retain some level of exposure in 
the security, not to exceed 10 percent of the amount of the 
loan. In addition, the amendment states that reserve 
requirements should not be determined solely by an 
institution's status as a depository institution or a non-bank 
lender. Rather, it is the Committee's intent that any exposure 
or reserve requirement be determined on a lender-by-lender 
basis, based upon the lender's experience and the nature of the 
securitization. Further, it is not the Committee's intent that 
SBA regulations impair existing securitization structures that 
have proven effective in expanding capital availability, while 
ensuring an appropriate level of risk retention by the issuing 
lender. The change was made by unanimous consent and the 
amendment was agreed to by a voice vote.
    Mr. Torkildsen then offered an amendment to Section 104 to 
change the definition of a disaster to include government 
action, regulatory or otherwise, in the clause regarding the 
closure of customary fishing waters. The amendment was debated 
and several Members expressed concern over the possible return 
to the prior (pre-1986) practice of granting ``economic injury 
disaster loans.'' Mr. Torkildsen rejoined that his amendment 
was both specific and carefully thought out. The conditions he 
sought to alleviate are the result of both government action 
and changes in natural environment exacerbated by government 
action. The amendment was put to a vote and was passed with 21 
votes in favor, 8 opposed.
    Mrs. Kelly offered two amendments to Section 106. The first 
eliminated a provision that would have removed a prohibition on 
institutions other than colleges and universities competing for 
Small Business Development Company lead center status. Mrs. 
Kelly expressed concern that local government entities would be 
encouraged to enter the program, possibly injecting politics 
into the process. In addition, it was her opinion that since 
SBDCs were primarily educational in their function, they 
belonged at educational institutions. The amendment was agreed 
to by voice vote.
    The second amendment eliminated a provision that would have 
allowed Small Business Development Centers to charge reasonable 
fees and prohibited the SBA from mandating such fees. Mrs. 
Kelly expressed her belief that the provision was detrimental 
because it raised the possibility of the withdrawal of 
assistance of matching funds from state and local partners. She 
also was concerned that such fees might serve to keep the 
smallest of entrepreneurs from coming to the centers, 
regardless of the optional nature of the fees. This amendment 
was also passed by voice vote.
    Mr. Jackson then offered an amendment to take out the 
repeal of the provisions for the handicapped assistance loan 
program and the low income areas loan program. During the 
debate Mr. Jackson expressed his belief that despite the fact 
that the Administration had not requested or received funding 
for these programs in recent years, a real need for them might 
exist in the future. Mr. LaFalce also spoke on behalf of the 
amendment, in particular the handicapped assistance loan 
program. Chair Meyers expressed her belief that the lack of 
funding made these programs obsolete and her concern that 
direct lending programs in general represent a drain of 
resources, which could also be met through guaranteed lending. 
Provisions similar to both these programs do exist under the 
7(a) program but are little used. The amendment was put to vote 
and was passed with 16 votes in favor, 10 opposed.
    Mr. LaFalce then offered an amendment to increase the 
annual fee charged to 7(a) lenders by one-twelfth of one 
percent. The Chair expressed concerns over the addition of more 
fees to the program. The amendment failed by a voice vote.
    Mr. Baldacci then offered an amendment to restore the 
guarantee percentage for Export Working Capital Loans to 90 
percent from the current rate of 75 to 80 percent. Mr. Baldacci 
expressed his concern that this rate was necessary in order to 
encourage bank participation in small business export lending. 
Mr. Manzullo expressed his concern that such lending did not 
appear to declining as a result of the lower guarantee 
percentage, and his disbelief that the large scale loans at the 
Export-Import Bank of the United States (Ex-Im Bank) are 
guaranteed at the 90 percent rate. The amendment was passed by 
a voice vote.
    Mr. LaFalce then offered an amendment with the support of 
the Chair to extend the authorization for SBA's programs 
through fiscal year 1998 at the fiscal year 1997 authorization 
levels. The amendment was agreed to by a voice vote.
    Mr. LaFalce then offered an amendment to increase the fees 
on the 7(a) loan program. The Chair expressed concerns and Mr. 
LaFalce withdrew the amendment.
    The Committee then moved to Title 2 of the bill. Mr. 
LaFalce offered a compromise amendment on behalf of himself and 
the Chair regarding the terms of the Development Company pilot 
liquidation program. Mr. Hefley expressed his concerns that the 
changes might encourage the SBA to limit participation in the 
program arbitrarily. The Chair echoed his concerns and 
expressed her intent that the program be implemented fully and 
seriously. The amendment was then passed by a voice vote.
    Having completed consideration of amendments the Committee 
then voted on the amendment in the nature of a substitute, as 
amended. The amendment was accepted by voice vote. The Chair 
then ascertained that a sufficient number of members were 
present, and the Committee voted to report the bill as amended 
by a unanimous voice vote.

            Section-by-Section Analysis and Committee Views

    Section 1 provides that this bill be known as The Small 
Business Programs Improvement Act of 1996 and gives a table of 
contents. Section 2 defines the term ``Administrator'' as used 
in the bill to refer to the Administrator of the Small Business 
Administration. Section 3 establishes that, unless noted 
otherwise in the bill, all provisions of H.R. 3719 take effect 
on October 1, 1996.

                        SECTION 101. REFERENCES

    Provides that unless expressly stated otherwise, all 
references in title one are to the Small Business Act (15 
U.S.C. Sec. 631, et seq.).

                 SECTION 102. RISK MANAGEMENT DATABASE

    This section instructs the SBA to set up a comprehensive 
and fully integrated computer database to track the performance 
of the 7(a), 504, and disaster assistance loan programs, and 
stratify and identify loan underwriting problems. It requires 
that information be collected, in a single system, on: 
defaults, losses, recoveries, lenders, and borrowers. This 
database shall also be able to compare data regarding defaults 
and losses in the 7(a) program by SBA region, district, 
Standard Industrial Classification (SIC) code, and loan size. 
This data shall be collected solely for information purposes 
and to assist the Administration in its overall program 
management goals. The information is currently collected by the 
SBA but is not collated in a format that the Committee believes 
adequately serves the needs of the agency.

                 SECTION 103. SECTION 7(a) LOAN PROGRAM

(a) Servicing and liquidation by preferred lenders

    This section amends Section 7(a)(2)(C) of the Small 
Business Act to specify that Preferred Lenders shall have full 
authority to collect on, and liquidate loans that they made 
without prior written approval of SBA for routine activities. 
The Committee desires that Preferred Lenders be afforded every 
opportunity to exercise the discretion they normally have in 
their lending liquidation activities. The Administration has 
regularly expressed in testimony before the Committee that this 
is the case, and the Committee seeks to be ensure that result. 
At the Administration's request, language was added in the en 
bloc amendment prohibiting lenders from engaging in conflicts 
of interest.

(b) Certified lenders program

    This section clarifies Section 7(a)(19) of the Small 
Business Act regarding the Certified Lender Program. It also 
institutes new authority for Certified Lenders to begin 
performing liquidation of SBA guaranteed loans subject to the 
approval of the Administration. This provision will essentially 
give Certified Lenders the authority that Preferred Lenders had 
prior to this Act.
            The low-documentation program
    This section also amends the Small Business Act to require 
that the Administration's low documentation loan program (Low-
Doc) loans be made only through Certified and Preferred 
Lenders, or lenders with significant small business lending 
experience. The bill requires the Administration to define such 
experience. The Committee adds this language to ensure that the 
Small Business Administration is living up to the guidelines it 
has promulgated for the Low-Doc program. These guidelines 
specifically state that the program shall be used only by the 
SBA's experienced lending partners. The section also requires 
that the SBA begin to track the subsidy rate for Low-Doc 
separately, a change the Committee finds to be prudent due to 
Low-Doc's substantial presence in the loan portfolio.

(c) Pilot program restriction

    This section amends Section 7(a) to provide that SBA may 
not establish a pilot program or initiative in the 7(a) program 
that in any one fiscal year exceeds ten percent of the total 
number of loans guaranteed in the entire 7(a) program. The 
Committee adds this language as a safeguard and a firewall from 
possible unintended consequences. The Committee appreciates the 
concern expressed by the Administration regarding the 
restriction that this may place on their ability to move 
forward with innovations. However, the Committee wishes to make 
clear that nothing prevents the SBA from implementing a pilot 
program and then asking the Committee to approve such an idea 
through simple legislative action. Any pilot program that would 
affect approximately $800 million of Federal guarantees is 
deserving of Congressional consideration.

(d) Securitization of unguaranteed loan portion

    This Section amends Section 5(f) of the Small Business Act 
to allow banks, as well as non-banks to securitize (i.e., sell 
in the secondary market) the non-guaranteed portion of SBA 
loans. Currently, only non-bank lenders may securitize the non-
guaranteed portion of their SBA guaranteed 7(a) loan portfolio. 
There are stringent regulations governing this practice, and 
non-bank lenders must apply individually and receive permission 
from the Agency to engage in this practice. H.R. 3719 removes 
the prohibition that prevents bank (depository institution) 
lenders from securitizing their non-guaranteed portion of their 
7(a) portfolio. The bill also makes clear that the SBA shall 
require each lender participating in this program to keep a 
sufficient reserve (up to ten percent) to safeguard the 
Administration's interest.

(e) Conditions on purchase of loans

    This section amends Sections 5(g) and 7(a) to establish 
procedures requiring the SBA to reduce the servicing fees or 
accrued interest paid to a lender for the period of time 
between the default of a loan and the payment on the guarantee. 
Both the fee and the interest rate would be reduced by one 
percent for that period. Currently, lenders are paid a fee for 
servicing loans that are sold on the secondary market. This 
provision would lower that payment for the period of time 
between the default on the loan and the payment on the 
guarantee. Similarly, the interest payable to a lending 
institution for that period would also be reduced.
    The Committee institutes this provision for two reasons: 
first, as a discipline fee to encourage lenders to improve the 
quality of the loans made, and to insure careful and serious 
monitoring of the health of the small business borrower; 
second, as a means of reducing, however slightly, the subsidy 
rate for the 7(a) program.

(f) Transfer of servicing functions

    This provision requires SBA to report to the Committee on 
its progress with centralizing loan servicing functions. The 
SBA has been transferring its loan servicing functions from the 
SBA District offices to the centralized loan servicing centers. 
Approximately half of the District offices have completed this 
transfer, and lenders have found the centralized servicing 
centers to be very efficient. However, the SBA has not 
completed the transfer of the remaining District office files 
to the centralized centers. The Committee bill directs the SBA 
to report on the status of this effort and any possible 
impediments within 90 days of enactment.

(g) Preferred lender review

    This provision requires the SBA to issue a Request for 
Proposals to implement its standard review program for Section 
7(a) Preferred Lenders. The program parameters are now ready 
but the program has yet to go forward. This review is a vital 
tool for the monitoring of SBA's largest lending partners, and 
the Committee intends that implementation go forward without 
further unnecessary delay.

(h) Independent study of loan programs

    Within two months of enactment of this legislation, the 
Administrator shall issue a solicitation and award a contract, 
through full and open competition, for an independent study and 
comprehensive report on the status of the 7(a) and 504 loan 
programs. This report shall contain detailed historical 
information and data on the losses incurred by the programs, 
the default rate for each year's lending cohort (i.e., loans 
made during that year), the number and frequency of defaults 
and deferrals for each year's cohort, and an analysis of the 
prospective loan losses for the program based on such data.
    The report shall also contain information comparing the 
relative loss rates of the loans provided by preferred lenders, 
certified lenders, or general participation lenders; a 
comparison of the loss rates of loans based upon their 
maturity; and a comparison of the loss rate of loans based on 
their dollar amount at disbursement. The report shall compare 
such information with the subsidy model for the program as 
prepared by OMB and report on the accuracy and validity of the 
OMB subsidy model and its assumptions.
    Finally, the report will provide recommendations for 
improving the information management and data collection 
activities of the Administration with regards to the 7(a) and 
504 programs. This report shall be delivered to the Small 
Business Administration which will have 30 days to append its 
comments, and those of the Office of Management and Budget, 
before presenting the report to the House and Senate Committees 
on Small Business.
    The Committee institutes this report because of a mounting 
frustration with the response received from both the SBA and 
the Office of Management and Budget. The Committee believes 
that it is imperative to obtain an impartial and objective 
accounting as to the health of the loan programs and their 
subsidy cost. This information is vital to the functioning of 
the SBA and the efficient operation of the legislative process. 
Finally, the Committee urges the Administrator to make every 
effort to draft the request for proposals for this report in a 
fashion that provides the maximum opportunity for small 
business to compete for this contract.

(i) General Accounting Office study

     This section requests a study by the General Accounting 
Office (GAO) to compare the costs of liquidating loans both 
privately and through the SBA. Currently, the Committee is 
informed that the costs of Preferred Lender Liquidation is 
higher than the cost of SBA liquidations. This statistic, 
however, belies the fact that the costs of SBA employees and 
other Federal employees are not counted towards the subsidy 
cost of the program. The Committee believes that this unfairly 
prejudices the accounting and masks the true cost of the 7(a) 
program. Consequently, the Committee requests that GAO study 
and compare the full costs on both sides of the equation, 
including indirect costs such as those of SBA personnel and 
U.S. Attorneys involved in the liquidations.
     In addition, as a control group, the Committee asks that 
GAO compare these costs with non-guaranteed loans made by 
Preferred Lenders to show any possible hidden costs not 
accounted for by the Committee. The Committee does not impose 
this as a condition upon Preferred Lenders, but hopes they will 
be cooperative with the GAO in their efforts.

                   section 104. disaster loan program

(a) Interest rate

     This section amends Section 7(c) of the Small Business Act 
to change the interest rate on disaster assistance loans to a 
rate equal to three-fourths of the rate for a Treasury 
instrument of a similar duration. This means that disaster 
loans will still be made at a rate below the cost of money to 
the Federal Government. Originally, the Administration had 
proposed raising the rate further to the full cost of money. 
While this would have saved the government additional funds, 
the Committee was not comfortable with that significant an 
increase in the interest rate for disaster victims.

(b) Servicing and liquidation pilot

     This section provides for a pilot project to be conducted 
by the Administration. The Administration will solicit and 
award, on a competitive basis, a contract to one or more 
private sector entities to service and liquidate a total of 
25,000 randomly chosen disaster loans (20,000 residential loans 
and 5,000 commercial loans). The pilot contract term will be 
two-years with options for five additional two-year terms. The 
SBA is required to report on the results of this pilot and 
compared the costs with the costs of SBA based liquidation.
     The Committee institutes this pilot program with the view 
towards the possibility of eventual privatization of disaster 
loan servicing and liquidation. The Committee has heard good 
reports regarding such efforts at other agencies and believes 
that, because the majority of disaster loans are long-term home 
loans, they can be serviced efficiently by private sector 
entities familiar with mortgage servicing.

(c) Disaster definition

     This provision amends Section 3(k) of the Small Business 
Act to expand the definition of disaster to include the closure 
of customary fishing waters by government action either 
regulatory or otherwise. Currently, the definition excludes 
closures of fisheries that are imposed by government fiat. This 
provision will include situations in which the government 
through law, regulation or malfeasance causes or orders the 
suspension of fishing.

              Section 105. microloan demonstration program

(a) Technical assistance grant requirements.

     This provision amends Section 7(m) of the Small Business 
Act to decrease the maximum amount that an intermediary may 
receive through the technical assistance grant component of the 
microloan program. It will be reduced by 5 percent, from 25 
percent to 20 percent, of the loan fund amount. The matching 
funds requirement will also be increased from 25 percent to 35 
percent.

(b) Requiring implementation of fiscal year 1995 program

    The bill requires the SBA to either implement the Microloan 
Guarantee Pilot Program established in Section 7(m)(12) of the 
Small Business Act or issue a report on why they are unable to 
implement the Microloan Guarantee Pilot Program. The bill 
specifies that failure to perform one of these options by 
December 1, 1996 will result in a freeze in the authorization 
for the program as a whole.
     In Section 201 of P.L. 103-403, the reauthorization bill 
adopted in 1994, the House and Senate Committees on Small 
Business directed the agency to pilot a guaranteed loan program 
for microloans. Currently, all microloan intermediaries get 
their loan funds on a direct lending basis from the SBA. The 
1994 legislation authorized providing a guarantee of up to 100 
percent to banks making the same type of loan to the 
intermediaries who use it to relend in small amounts to 
entrepreneurs. The microloan is one of the few direct loan 
program still in existence at the Agency, and moving the 
program to a guaranteed basis would result in savings to the 
Federal Government. This approach was, in fact, recommended by 
the National Performance Review. Appropriations have been 
provided since fiscal year 1995 to implement this microloan 
guarantee pilot. However, the Agency has yet to do so.

         SECTION 106. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM

     The bill amends Section 21 of the Small Business Act to 
provide for clear authority for the Associate Administrator for 
Small Business Development Centers to establish a comprehensive 
certification and eligibility review program for Small Business 
Development Centers. These changes clarify the management 
structure of the program and provide for enhanced oversight of 
grants and cooperative agreements.

                 SECTION 107. MISCELLANEOUS AUTHORITIES

    This section eliminates several provisions for programs 
that are either redundant or are no longer being funded or 
implemented. These include Trade Assistance Loans and Solar 
Energy Loans, both programs that are unfunded and whose 
purposes are currently satisfied by other programs such as the 
7(a) loan program.

          SECTION 108. SMALL BUSINESS COMPETITIVENESS PROGRAM

    This section will extend the Small Business Competitiveness 
Demonstration Program, which is due to expire at the end of 
fiscal year 1996, by four years, or through fiscal year 2000. 
This program suspends small business procurement set-asides for 
four industrial categories, promoting full and open competition 
in those categories. No small business set-aside will exist for 
these categories under the pilot, as long as the number of 
small businesses competing and winning awards in these 
categories meets and exceeds twice the 20 percent small 
business goal.
    In addition, the bill requires the SBA to submit a detailed 
cumulative report on the program, complete with the procurement 
statistics on the program from 1992 through 1995, within 60 
days of enactment. This section also restates the reporting 
requirement for information on small business subcontracting in 
the Architecture and Engineering category, information that has 
yet to be provided despite existing requirements. The bill also 
provides technical clarification of the small businesses 
eligible under the pilot program. The clarifications are 
necessary due to changes in the Standard Industrial 
Classification code system.

                 SECTION 109. AMENDMENT TO P.L. 103-81

    This section repeals Section 7 of the Small Business 
Guaranteed Credit Enhancement Act of 1993 and eliminates the 
sunset of a fee on the sale of guaranteed loans on the 
secondary market.

         SECTION 110. EXPORT WORKING CAPITAL LOAN PROGRAM LEVEL

    This section restores the 90 percent guarantee level for 
Export Working Capital Loans. The guarantee was reduced to a 
maximum of 75 percent (80 percent for loans under $100,000) in 
P.L. 104-36. While this change represents a return to the 
``harmonization'' with Ex-Im Bank loans, which are also 
guaranteed at 90 percent, the Committee continues to be 
concerned about the need to guarantee any loan at such a high 
rate.
    In addition, there is a continuing lack of interest in 
small business lending at the Ex-Im Bank. It seems absurd to 
this Committee that the Ex-Im Bank and the Administration 
continue to push assistance for Ex-Im Bank's large business 
clientele while Ex-Im Bank ignores its charter and treats small 
business lending as a poor relation. ``Harmonization'' appears 
to be no more than an opportunity for Ex-Im Bank to continue to 
evade its responsibility to the small business exporting 
community. The Committee is pleased that SBA steps up to the 
plate but is concerned with Ex-Im Bank's continuing failure.

                    SECTION 111. 1998 AUTHORIZATIONS

    This section amends Section 20 of the Small Business Act to 
reauthorize the Small Business Administration and its programs 
through fiscal year 1998. This provision is at the same 
authorization level as fiscal year 1997, representing neither a 
cut nor an increase in the authorization. The authorization 
also eliminates the earmark for debentures for the Specialized 
Small Business Investment Company (SSBIC) debentures. The 
heavily subsidized SSBIC program has proven an undue burden on 
the program's finances and consequently the specific earmark is 
removed. It is the Committee's intent that no more of these 
debentures be funded.

                        SECTION 201. REFERENCES

    This section provides that unless expressly stated 
otherwise, all references in Title 2 are to the Small Business 
Investment Act of 1958 (15 U.S.C. Sec. 661, et seq.).

             SECTION 202. MODIFICATIONS TO THE 504 PROGRAM

(a) Loan to value ratio

    This provision amends Section 502 of the Small Business 
Investment Act by modifying the amount of contribution required 
from a small business for participation in a 504 loan package. 
Start-up small businesses (i.e., those in business two years or 
less) and borrowers seeking financing for a special purpose 
building (i.e., a building with a specific use, such as a hotel 
or carwash), must put a minimum of 15 percent down, instead of 
the minimum of 10 percent as required under current law. This 
additional 5 percent down will reduce the SBA's portion of the 
project from 40 percent to 35 percent, resulting in a 15-50-35 
split--borrower, first mortgage holder, and SBA debenture 
financing, respectively, for the project.
    Furthermore, these requirements are additive, so that a 
start-up small business seeking financing for a special purpose 
building must put 20 percent down (i.e., an additional 5 
percent for being a start-up small business and 5 percent for 
financing a special purpose building). This will effectively 
lower the SBA's financing for the project to 30 percent. These 
new requirements are designed to help mitigate the risk to the 
portfolio as evidenced by a much higher default rate for start-
up small businesses and the liquidation problems presented by 
special purpose buildings.

(b) Guarantee fee for development company debentures

    This provision amends Section 503(b)(7)(A) of the small 
Business Investment Act to increase the one-eighth of 1 percent 
fee that the borrower is currently required to pay on the 
annual outstanding balance of the principal on the SBA portion 
of the project (pursuant to P.L. 104-36) to thirteen-sixteenths 
of one percent. The Committee is not pleased that the increase 
in fees is required, but as outlined elsewhere in this report, 
finds it has little alternative.

(c) Fees to offset subsidy cost

     This provision amends Section 503(d) to include two new 
fees for this program. The participation fee is a one-time, up-
front fee of one-half of one percent on the total cost of the 
project. It will be levied on the first mortgage holder. This 
is typically a local bank that funds 50 percent of the project. 
This fee will be passed through to the SBA to offset the 
subsidy rate.
     Under the development company servicing fee, one-eighth of 
one percent of the annual servicing fee collected by 
Development Companies will be passed-through to the SBA to 
offset the subsidy rate. Certified Development Companies 
currently receive a total of between 0.5 percent and 1.5 
percent from the borrower in loan servicing fees.

               SECTION 203. REQUIRED ACTIONS UPON DEFAULT

(a) Deadlines

     This section amends Section 503 of the Small Business 
Investment Act by instructing SBA to take action on defaulted 
loans within a certain time frame in order to speed recoveries 
and liquidations. Within 45 days of a missed payment, the SBA 
must act to bring the loan current or enter into a deferral 
agreement. Within 65 days of a missed payment and absent a 
deferral, the SBA must start to accelerate (i.e., foreclose) on 
the loan. This provision is added to ensure that prompt action 
is taken by the SBA. It is a bromide in the financial services 
industry that time is money. Any time that the SBA allows to go 
by on a defaulted loan without definitive action increase the 
risk of loss to the government. The Committee believes that 
this provision will encourage decisive action by the SBA and 
thereby improve the monitoring and performance of the loan 
portfolio.

(b) Prepayment penalties and late fees

     This provision prohibits the SBA from paying late fees or 
prepayment penalties on defaulted loans. It also prohibits the 
SBA from paying any ``default interest rate'' on a defaulted 
loan. This language is designed to cure a problem that occurs 
when the SBA purchases the first mortgage position from banks 
that participate in Development Company loans. The SBA is often 
obliged to pay ``prepayment'' penalties on loans that have gone 
into default. Prepayment penalties are more commonly, and 
appropriately, charged only when a borrower pays off a loan 
early.
     This provision put a stop to that practice and requires 
that the local banks, Development Companies, and the SBA work 
out loan terms that reflect the real partnership occurring in 
this program.
     This section contains similar language regarding late fees 
paid by the SBA in the same circumstances. The Committee 
believes that the SBA's purchase of the first mortgage position 
negates any need to pay a ``late fee''. Like a prepayment 
penalty this charge is not appropriate for a defaulted, rather 
than delinquent, loan.

              SECTION 204. LOAN LIQUIDATION PILOT PROGRAM

     This provision requires SBA, working cooperatively with 
the Certified Development Companies, to develop and implement a 
pilot program in which CDCs will have complete authority to 
liquidate their own loans. This responsibility will be 
delegated only to a select number of the most experienced and 
active CDCs, namely those with six years of program experience 
and an average of ten loans per year, and liquidation 
experience sufficient to carry out this function. SBA will be 
charged with the responsibility of overseeing the 
implementation and functioning of this pilot program and will 
issue a report on the effectiveness of the pilot program at the 
end of two years.
     While it is the intent of the Committee to allow the 
Administrator discretion in the admission of Development 
Companies to the pilot program within the bounds of the program 
parameters, the Committee expects the Administration to deny 
admission only in circumstances in which it is apparent that 
the Development Company cannot carry out the responsibilities 
required under the pilot program.

               SECTION 205. REGISTRATION OF CERTIFICATES

     This section amends Section 5 of the Small Business Act 
and Section 321 of the Small Business Investment Act to allow 
SBIC and 504 development company debentures and securities to 
be filed electronically. Currently, the law requires a number 
of unnecessary disclaimers and statements on these securities, 
which prevent the instruments from being electronically 
registered. This section removes those restrictions.

          SECTION 206. PREFERRED SURETY BOND GUARANTEE PROGRAM

     This section amends Section 411 of the Small Business 
Investment Act to provide new applicants with expeditious 
responses to their applications. It also requires that the SBA 
police the use of the program to ensure that participant 
companies are using their bonding authority and authorizes the 
removal of program participants who do not use their authority 
adequately. The Committee adds this provision in response to 
concerns over insufficient participation by some program 
participants. The Committee intends that the Administration 
will take action with regard applications pending on or after 
October 1, 1995.

                Congressional Budget Office Cost Estimate

     In compliance with Clause 2(l)(3)(c) of rule XI of the 
House of Representatives, the Committee sets forth, with 
respect to H.R. 3719, the following statement received by the 
Director of the Congressional Budget Office under section 403 
of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 2, 1996.
Hon. Jan Meyers,
Chair, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Madam Chair: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3719, the Small 
Business Programs Improvement Act of 1996.
    Enactment of H.R. 3719 would not affect direct spending or 
receipts. Therefore, pay-as-you-go procedures would not apply 
to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

               Congressional Budget Office Cost Estimate

    1. Bill number: H.R. 3719.
    2. Bill title: Small Business Programs Improvement Act of 
1996.
    3. Bill status: As ordered reported by the House Committee 
on Small Business on July 18, 1996.
    4. Bill purpose: H.R. 3719 would amend the Small Business 
Act and the Small Business Investment Act to modify a number 
programs administered by the Small Business Administration 
(SBA) and would reauthorize certain SBA programs for fiscal 
year 1998.
    Section 7(a) of the Small Business Act authorizes the SBA 
to guarantee business loans for certain purposes. Title I of 
H.R. 3719 would modify the 7(a) program by:
          Allowing certain SBA-licensed private sector lenders 
        to liquidate and service SBA 7(a) loans without 
        specific prior approval from the SBA,
          Reducing the payments made by the SBA to private-
        sector lenders upon default of a SBA-guaranteed loan,
          Allowing a lender to sell the non-guaranteed portion 
        of any 7(a) loan, provided the lender meets certain 
        requirements, and;
          Requiring the SBA to establish a separate subsidy 
        rate for the 7(a) loans made under the low 
        documentation program.
    In addition, the bill would require the SBA to establish a 
data base for the purpose of tracking the performance of the 
7(a) and disaster loans and would require a number of studies 
by the SBA and General Accounting Office (GAO).
    Title I would modify the disaster loan program to increase 
the interest rate on disaster loans, subject to the discretion 
of the Administrator of the SBA, but would set a new cap on the 
interest rate. That cap would be equal to three-quarters of the 
rate on Treasury securities with comparable maturities plus 1 
percent. In addition, the bill would change the SBA definition 
of ``disaster'' to include government action that results in 
the closure of customary fishing waters. The provision would 
thus allow those adversely affected by the Government closure 
of a fishery to apply for SBA disaster loans.
    Title I also would terminate a number of small loan 
programs and would extend the Small Business Competitiveness 
Demonstration Program through the end of fiscal year 2000. The 
title also would authorize appropriations for fiscal year 1998 
of about $150 million for SBA disaster programs and about $1.3 
billion for SBA business programs.
    The Small Business Investment Act authorizes the SBA to 
guarantee debentures issued by development companies who, in 
cooperation with banks or other lending institutions, assist 
small businesses with plant acquisition or construction 
projects. Title II of the bill would increase the annual fee 
that is charged to the small businesses and would establish a 
participation fee and a development company fee to be paid by 
the lending institution and the development company, 
respectively. Proceeds from the fees would be used to offset 
the cost of making the guarantees. In certain cases, the bill 
also would increase the amount of participation in the project 
by the small business. Finally, Title II would authorize the 
SBA to terminate the participation of certain companies in the 
Preferred Surety Bond Program.
    5. Estimated cost to the Federal Government: Assuming 
appropriation of the authorized amounts, CBO estimates that 
enacting H.R. 3719 would result in new discretionary spending 
of about $1.3 billion over the 1997-2002 period, primarily for 
SBA expenditures. CBO's estimate of new discretionary spending 
includes amounts authorized in H.R. 3719 for several SBA 
programs that did not receive an appropriation in fiscal year 
1996. Outlays estimates are based on historical spending rates 
for the authorized programs and assume that appropriations will 
be provided before the start of each fiscal year.
    Fiscal year 1996 appropriations totaled $817 million for 
the SBA. In fiscal year 1997, current law authorizes an 
appropriation of about $1.7 billion for the agency. H.R. 3719 
would modify or terminate several loan programs currently 
authorized for fiscal year 1997 resulting in a decrease in the 
amount of appropriations needed to fund the authorized level of 
loans in that year. The following table summarizes the 
budgetary impact of this bill.

                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                                                                                
        SPENDING SUBJECT TO APPROPRIATION                                                                       
                                                                                                                
Spending Under Current Law:                                                                                     
    Estimated Authorization Level 1..............      817    1,669  .......  .......  .......  .......  .......
    Estimated Outlays............................    1,058    1,483      574       94  .......  .......  .......
Proposed Changes:                                                                                               
    Estimated Authorization Level................  .......     -230    1,594        1        1  .......  .......
    Estimated Outlays............................  .......     -141      954      453       97  .......  .......
Spending Under H.R. 3719:                                                                                       
    Estimated Authorization Level 1..............      817    1,439    1,594        1        1  .......  .......
    Estimated Outlays............................    1,058    1,342    1,528      547       97  .......  .......
----------------------------------------------------------------------------------------------------------------
1 The 1996 level is the amount appropriated for that year.                                                      

    The costs of this bill fall within budget functions 370 and 
450.
    6. Basis of estimate: CBO estimates that the bill would 
reduce existing authorization amounts for fiscal year 1997 by 
$230 million. Based on the loan levels specified in H.R. 3719, 
CBO estimates that the bill would provide an authorization 
level of about $1,590 million for fiscal year 1998. We estimate 
that extending the competitiveness demonstration program would 
cost about $1 million a year for each of fiscal years 1997 
through 2000.
    Modifications to the 7(a) loan program.--H.R. 3719 would 
make a number of changes to the 7(a) loan program. The bill 
would allow certain SBA lenders to liquidate and service 7(a) 
loans without prior specific approval from the agency. 
Currently, lenders that liquidate the SBA-guaranteed loans 
deduct their administrative costs from the amounts recovered 
and forward the remaining money to the government. Enacting 
this provision would likely cause a slight increase in cost of 
the 7(a) program because the SBA would not be above to halt or 
renegotiate the terms of a loan recovery if the lending 
institution's administrative costs are too high. This cost 
would likely be offset by the reduction in payments made by the 
SBA upon the default of a guaranteed loan. CBO estimates that 
there would be at most a negligible effect of these two 
provisions on the subsidy rate.
    H.R. 3715 would require the SBA to promulgate regulations 
defining the experience necessary for lenders to participate in 
the 7(a) low documentation program. Based on information from 
the SBA, CBO estimates that the cost of the rulemaking would be 
less than $100,000. CBO would not expect the other provisions 
modifying the 7(a) program to have any budgetary impact.
    Modifications to the disaster loan program.--H.R. 3719 
would modify the disaster loan program to increase the interest 
rate on disaster loans from no more than 4 percent to no more 
than three-quarters of the rate on Treasury securities with 
comparable maturities plus 1 percent. Under current law, the 
SBA is authorized to loan $1.7 billion in disaster loans in 
fiscal year 1996 and such sums as necessary in fiscal year 
1997. (For the purpose of this estimate, CBO assumes that 
fiscal year 1997 appropriations will provide the same loan 
level for 1997 as for 1996.) CBO estimates that the subsidy 
rate for fiscal year 1997 for the disaster loan program would 
be about 16.5 percent under current law.
    Enacting H.R. 3719 could reduce the estimated subsidy rate 
for the program because the bill would likely require borrowers 
to repay the loans at a higher interest rate. Assuming that the 
Administrator of the SBA chooses to increase the interest rate 
to the maximum rate that the bill would allow, CBO estimates 
that the average subsidy rate for the disaster loan program 
would fall from approximately 16.5 percent to 12.3 percent in 
fiscal year 1997. The reduction in the subsidy rate would 
decrease the amount of appropriations needed to subsidize the 
disaster loans in fiscal year 1997 at the authorized level from 
an estimated $213 million to $159 million. Assuming that the 
SBA would be authorized to make the same amount of loans in 
fiscal year 1998 as in fiscal year 1996, we estimate that the 
amount of appropriations needed to subsidize the loan level 
would be $153 million. In addition to the subsidy costs, CBO 
estimates that expenses for administering the loans would total 
about $130 million in each of fiscal years 1997 and 1998.
    In addition, H.R. 3719 would expand the disaster loan 
program to allow individuals and small businesses adversely 
affected by the government closure of a fishery to receive SBA 
disaster loans. Based on information provided by the National 
Oceanic and Atmospheric Administration and the Massachusetts 
Office of Development, CBO predicts that those affected by the 
closure of the New England groundfish fishery would be most 
likely to apply for loans, but other fisheries are or may be 
closed, and those working in and around those fisheries would 
be eligible as well. Of those affected by the closure of the 
groundfish, CBO estimates that loan demand would total between 
$20 million and $30 million, resulting in a subsidy cost of 
about $3 million over fiscal years 1997 and 1998, assuming 
appropriation of the estimated amounts.
    Modifications to the 504 loan program.--Under current law, 
SBA is authorized to guarantee $3.25 billion in 504 loans for 
fiscal year 1997. Fiscal year 1996 appropriations provided for 
$2.5 billion in SBA-guaranteed 504 loans. CBO estimates that 
under current law the subsidy rate for the 504 loans would be 
about 6.8 percent in fiscal year 1997 and that the amount of 
appropriations needed to subsidize the 504 guarantees at the 
authorized level would be about $221 million. CBO estimates 
that enacting H.R. 3719 would reduce the average subsidy rate 
for the 504 program 1.5 percent in fiscal year 1997. The 
reduction in the subsidy rate would decrease the amount of 
appropriations needed to subsidize 504 loans at the authorized 
level to $49 million in fiscal year 1997.
    Enacting H.R. 3719 would reduce the subsidy rate for the 
504 program because the bill would authorize the SBA to impose 
additional fees on program participants for fiscal year 1997 
and would modify other aspects of the 504 program. The 
imposition of the additional fees accounts for most of the 
reduction in the subsidy rate. Other changes in the program 
also would reduce the subsidy slightly. CBO assumes, however, 
that the decrease in the subsidy rate due to the additional 
fees would be partially offset by an increase in the default 
rate because some of the more qualified small businesses would 
seek less expensive financing elsewhere.
    H.R. 3719 also would authorize the SBA to guarantee $3.25 
billion in 504 loan program for fiscal year 1998. Because the 
bill would authorize the SBA to collect the additional fees to 
offset the cost of the 504 program in fiscal year 1997, CBO 
would estimate the average subsidy cost of the loans would 
increase from 1.5 percent to 6.6 percent in that year.
    Small Business Competitive Demonstration Program.--H.R. 
3719 would extend this program from the end of fiscal year 1996 
to the end of fiscal year 2000 and would require the Department 
of Commerce to participate in the program. Based on information 
from the participating agencies, CBO estimates that extending 
the program would cost each of the 11 participating agencies 
and the SBA less than $100,000 a year to report and compile the 
required data, assuming appropriation of the necessary amounts. 
Hence, we estimate a total annual cost of about $1 million for 
each year that the program is extended.
    Other provisions.--A small portion of the estimated 
reduction in the authorization level for 1997 is attributable 
to a shift from one small business investment company program 
to another. The bill also would require the SBA to conduct a 
comprehensive study of several loan programs. Based on 
information from the SBA, CBO estimates that the study would 
cost about $1 million in fiscal year 1997, assuming 
appropriation of the necessary amounts. Title I would require 
the GAO to study the cost of liquidating certain SBA-guaranteed 
loans. Based on information from the GAO and assuming 
appropriation of the necessary amounts, CBO estimates that the 
study would cost about $350,000 in fiscal year 1997. Finally, 
Title I of H.R. 3719 would require the SBA to establish a data 
base to track the performance of the 7(a) loans and disaster 
loans. Because the SBA has already established this data base, 
CBO estimates that this provision would result in no additional 
cost to the government.
    7. Pay-as-you-go considerations: None.
    8. Estimated impact on State, local, and tribal 
governments: H.R. 3719 contains no intergovernmental mandates 
as defined in the Unfunded Mandates Reform Act of 1995 (Public 
Law 104-4). The bill would impose a fee (for fiscal year 1997 
only) on state or local governments that choose to take a 
senior credit position in a project funded through the 
Development Company Debenture program. (The senior credit 
position belongs to the institution or organization lending the 
most funds for the project.) Based on information from SBA, CBO 
estimates that the total cost to state and local governments 
would be negligible because they rarely take such a credit 
position.
    9. Estimated impact on the private sector: This bill would 
impose no new private-sector mandates as defined in Public Law 
104-4.
    10. Previous CBO estimate: None.
    11. Estimated prepared by: Federal Cost Estimate: Rachel 
Forward and Rachel Robertson. Impact on State, Local, Tribal 
Governments: Marc Nicole. Impact on the Private Sector: Patrice 
Gordon.
    12. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the House of 
Representatives, the Committee estimates that H.R. 3719 will 
have no inflationary impact on prices and costs in the 
operation of the national economy.

                       Unfunded Mandates Estimate

    Pursuant to the provisions of P.L. 104-4 (109 Stat. 48, et 
seq.), the Unfunded Mandates Reform Act of 1995, the Committee 
estimates that H.R. 3719 will not impose unfunded mandates as 
defined in that Act.

                           Oversight Findings

    In accordance with clause (l)(3)(D) of rule XI of the House 
of Representatives, the Committee states that no oversight 
findings or recommendations have been made by the Committee on 
Government Reform and Oversight with respect to the subject 
matter contained in H.R. 3719.
    In accordance with clause 2(l)(3)(A) of rule I and clause 
2(b)(1) of rule X of the House of Representatives, the 
oversight findings and recommendations of the Committee on 
Small Business with respect to the subject matter contained in 
H.R. 3719 are incorporated into the descriptive portions of 
this report.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italics, existing law in which no change is proposed 
is shown in roman):

                           SMALL BUSINESS ACT

          * * * * * * *
  Sec. 3. (a) * * *
          * * * * * * *
  (k) For the purposes of this Act, the term ``disaster'' means 
a sudden event which causes severe damage including, but not 
limited to, floods, hurricanes, tornadoes, earthquakes, fires, 
explosions, volcanoes, windstorms, landslides or mudslides, 
tidal waves, [ocean conditions] ocean conditions, or government 
action (regulatory or otherwise) resulting in the closure of 
customary fishing waters, riots, civil disorders or other 
catastrophes, except it does not include economic dislocations.
          * * * * * * *
  Sec. 4. (a) * * *
  (b)(1) * * *
          * * * * * * *
    (3) Risk management database.--
          (A) Establishment.--The Administration shall 
        establish, within the management system for the loan 
        programs authorized by subsections (a) and (b) of 
        section 7 of this Act and title V of the Small Business 
        Investment Act of 1958, a management information system 
        that will generate a database capable of providing 
        timely and accurate information in order to identify 
        loan underwriting, collections, recovery, and 
        liquidation problems.
          (B) Information to be maintained.--In addition to 
        such other information as the Administration considers 
        appropriate, the database established under 
        subparagraph (A) shall, with respect to each loan 
        program described in subparagraph (A), include 
        information relating to--
                  (i) the identity of the institution making 
                the guaranteed loan or issuing the debenture;
                  (ii) the identity of the borrower;
                  (iii) the total dollar amount of the loan or 
                debenture;
                  (iv) the total dollar amount of government 
                exposure in each loan;
                  (v) the district of the Administration in 
                which the borrower has its principal office;
                  (vi) the borrower's principal line of 
                business, as identified by Standard Industrial 
                Classification Code (or any successor to that 
                system);
                  (vii) the delinquency rate for each program 
                (including number of instances and days 
                overdue);
                  (viii) the number of defaults in each program 
                (including losses and recoveries);
                  (ix) the number of deferrals or forbearances 
                in each program (including days and number of 
                instances); and
                  (x) comparisons on the basis of loan program, 
                lender, Administration district and region, for 
                all the data elements maintained.
          (C) Deadline for operational capability.--The 
        database established under subparagraph (A) shall be 
        operational not later than March 31, 1997, and shall 
        capture data beginning on the first day of the first 
        quarter of fiscal year 1997 beginning after such date 
        and thereafter.
          * * * * * * *
  Sec. 5. (a) * * *
          * * * * * * *
  (f)(1) * * *
          * * * * * * *
  (3) The Administration shall develop such procedures as are 
necessary for the facilitation, administration, and promotion 
of secondary market operations, and for assessing the increase 
of small business access to capital at reasonable rates and 
terms as a result of secondary market operations. The 
Administration may not prohibit a lender from securitizing the 
nonguaranteed portion of any loan made under section 7(a). In 
order to reduce the risk of loss to the government in the event 
of default, the Administration shall require all lenders 
securitizing, or requesting Administration approval for the 
securitization of the nonguaranteed portion of any loan after 
August 1, 1996, to retain exposure of up to 10 percent of the 
amount of the loan, which percentage shall be applicable 
uniformly to both depository institutions and other lenders.
          * * * * * * *
  (g)(1) * * *
          * * * * * * *
  (5)(A) In the event the Administration pays a claim under a 
guarantee issued under this subsection, it shall be subrogated 
fully to the rights satisfied by such payment.
          * * * * * * *
  (C) In the event the Administration pays a claim under a 
guarantee issued under this Act, the servicing fees paid to the 
lender from the earliest date of default to the date of payment 
of the claim shall be no more than the agreed upon rate, minus 
one percent.
  (h)(1) Upon the adoption of final rules and regulations, the 
Administration shall--
          [(1) provide for a central registration of all loans 
        and trust certificates sold pursuant to subsections (f) 
        and (g) of this section. Such central registration 
        shall include, with respect to each sale, an 
        identification of each lender who has sold the loan; 
        the interest rate paid by the borrower to the lender; 
        the lender's servicing fee; whether the loan is for a 
        fixed rate or variable rate; an identification of each 
        purchaser of the loan or trust certificate; the price 
        paid by the purchaser for the loan or trust 
        certificate; the interest rate paid on the loan or 
        trust certificate; the fees of an agent for carrying 
        out the functions described in paragraph (2) below; and 
        such other information as the Administration deems 
        appropriate;]
          (A) provide for a central registration of all loans 
        and trust certificates sold pursuant to subsections (f) 
        and (g) of this section;
          [(2)] (B) contract with an agent to carry out on 
        behalf of the Administration the central registration 
        functions of this section and the issuance of trust 
        certificates to facilitate pooling. Such agent shall 
        provide a fidelity bond or insurance in such amounts as 
        the Administration determines to be necessary to fully 
        protect the interest of the Government;
          [(3)] (C) prior to any sale, require the seller to 
        disclose to a purchaser of the guaranteed portion of a 
        loan guaranteed under this Act and to the purchaser of 
        a trust certificate issued pursuant to subsection (g), 
        information on the terms, conditions, and yield of such 
        instrument. As used in this paragraph, if the 
        instrument being sold is a loan, the term ``seller'' 
        does not include (A) an entity which made the loan or 
        (B) any individual or entity which sells three or fewer 
        guaranteed loans per year; and
          [(4)] (D) have the authority to regulate brokers and 
        dealers in guaranteed loans and trust certificates sold 
        pursuant to subsection (f) and (g) of this section.
  (2) Nothing in this subsection shall prohibit the utilization 
of a book entry or other electronic form of registration for 
trust certificates. The Administration may, with the consent of 
the Secretary of the Treasury, use the book-entry system of the 
Federal Reserve System.
          * * * * * * *
  Sec. 7. (a) The Administration is empowered to the extent and 
in such amounts as provided in advance in appropriation Acts to 
make loans for plant acquisition, construction, conversion, or 
expansion, including the acquisition of land, material, 
supplies, equipment, and working capital, and to make loans to 
any qualified small business concern, including those owned by 
qualified Indian tribes, for purposes of this Act. Such 
financings may be made either directly or in cooperation with 
banks or other financial institutions through agreements to 
participate on an immediate or deferred (guaranteed) basis. 
These powers shall be subject, however, to the following 
restrictions, limitations, and provisions:
          (1) * * *
          (2) Level of participation in guaranteed loans.--
                  (A) * * *
          * * * * * * *
                  (C) Interest rate under preferred lenders 
                program.--
                          (i) In general.--The maximum interest 
                        rate for a loan guaranteed under the 
                        Preferred Lenders Program shall not 
                        exceed the maximum interest rate, as 
                        determined by the Administration, 
                        applicable to other loans guaranteed 
                        under this subsection.
                          (ii) Preferred lenders program 
                        defined.--For purposes of this 
                        subparagraph, the term ``Preferred 
                        Lenders Program'' means any program 
                        established by the Administrator, as 
                        authorized under the proviso in section 
                        5(b)(7), under which a written 
                        agreement between the lender and the 
                        Administration delegates to the 
                        lender--
                                  (I) complete authority to 
                                make and close loans with a 
                                guarantee from the 
                                Administration without 
                                obtaining the prior specific 
                                approval of the Administration; 
                                and
                                  [(II) authority to service 
                                and liquidate such loans.]
                                  (II) complete authority to 
                                service and liquidate such 
                                loans without obtaining the 
                                prior specific approval of the 
                                Administration for routine 
                                servicing and liquidation 
                                activities, but shall not take 
                                any actions creating an actual 
                                or apparent conflict of 
                                interest.
                  (D) Participation under export working 
                capital program.--Notwithstanding subparagraph 
                (A), in an agreement to participate in a loan 
                on a deferred basis under the Export Working 
                Capital Program established pursuant to 
                paragraph (14)(A), such participation by the 
                Administration shall be equal to the rate 
                specified under this paragraph as in effect on 
                the day before the date of the enactment of the 
                Small Business Lending Enhancement Act of 1995.
          * * * * * * *
          (17)(A) The Administration shall authorize lending 
        institutions and other entities in addition to banks to 
        make loans authorized under this subsection.
          (B) Any bank or other lending institution making a 
        claim for payment on the guaranteed portion of a loan 
        made under this subsection shall be paid the accrued 
        interest due on the loan from the earliest date of 
        default to the date of payment of the claim at a rate 
        not to exceed the rate of interest on the loan on the 
        date of default, minus one percent.
          * * * * * * *
          [(19)(A) In addition to the Preferred Lenders Program 
        authorized by the proviso in section 5(b)(7), the 
        Administration is authorized to establish a Certified 
        Lenders Program for lenders who establish their 
        knowledge of Administration laws and regulations 
        concerning the guaranteed loan program and their 
        proficiency in program requirements. The designation of 
        a lender as a certified lender shall be suspended or 
        revoked at any time that the Administration determines 
        that the lender is not adhering to its rules and 
        regulations or that the loss experience of the lender 
        is excessive as compared to other lenders, but such 
        suspension or revocation shall not affect any 
        outstanding guarantee.
          [(B) In order to encourage all lending institutions 
        and other entities making loans authorized under this 
        subsection to provide loans of $50,000 or less in 
        guarantees to eligible small business loan applicants, 
        the Administration shall develop and allow 
        participating lenders to solely utilize a uniform and 
        simplified loan form for such loans.]
          (19)(A) Certified lenders program.--
                  (i) Establishment.--In addition to the 
                Preferred Lenders Program authorized by the 
                proviso in section 5(b)(7), the Administration 
                is authorized to establish a Certified Lenders 
                Program for lenders who establish their 
                knowledge of Administration laws and 
                regulations concerning the guaranteed loan 
                program and their proficiency in program 
                requirements.
                  (ii) Suspension and revocation.--The 
                designation of a lender as a certified lender 
                shall be suspended or revoked at any time that 
                the Administration determines that the lender 
                is not adhering to its rules and regulations or 
                that the loss experience of the lender is 
                excessive as compared to other lenders, but 
                such suspension or revocation shall not affect 
                any outstanding guarantee.
          (B) Uniform and simplified loan forms.--In order to 
        encourage all lending institutions and other entities 
        making loans authorized under this subsection to 
        provide loans of $50,000 or less in guarantees to 
        eligible small business loan applicants, the 
        Administration shall develop and allow participating 
        lenders to solely utilize a uniform and simplified loan 
        form for such loans.
          (C) Low documentation loan program.--The 
        Administrator may carry out the low documentation loan 
        program for loans of $100,000 or less only through 
        Preferred Lenders and Certified Lenders, or lenders 
        with significant experience making small business 
        loans. The Administration shall give special 
        consideration to lenders who have made loans under the 
        authority of this section. The Administrator shall 
        promulgate regulations defining the experience 
        necessary for lenders other than Preferred or Certified 
        Lenders for participation as a lender in the low 
        documentation loan program no later than 90 days after 
        the date of enactment of this subsection.
          (D) Authority liquidate loans.--
                  (i) In general.--Lenders participating in the 
                Certified Lenders Program shall have authority 
                to liquidate loans made with a guarantee from 
                the Administration.
                  (ii) Approval.--The Administrator has the 
                authority to require a certified lender to 
                request approval of a routine liquidation 
                activity, and if the Administrator does not 
                approve or deny a request made by a certified 
                lender within a period of 3 business days, such 
                request shall be deemed to be approved.
          (E) Low documentation loan program subsidy rate.--The 
        Administrator shall with the assistance of the Director 
        of the Office of Management and Budget establish and 
        monitor, on an annual basis, the subsidy rate for the 
        low documentation loan program, independently of other 
        loans authorized by this section.
          * * * * * * *
          (25) Limitation on conducting pilot projects.--
                  (A) In general.--Not more than 10 percent of 
                the total number of loans guaranteed in any 
                fiscal year under this subsection may be 
                awarded as part of a pilot program which is 
                commenced by the Administrator on or after 
                October 1, 1996.
                  (B) Pilot program defined.--In this 
                paragraph, the term ``pilot program'' means any 
                lending program initiative, project, 
                innovation, or other activity not specifically 
                authorized by law.
          * * * * * * *
  (c)(1) The Administration may further extend the maturity of 
or renew any loan made pursuant to this section, or any loan 
transferred to the Administration pursuant to Reorganization 
Plan Numbered 2 of 1954, or Reorganization Plan Numbered 1 of 
1957, for additional periods not to exceed ten years beyond the 
period stated therein, if such extension or renewal will aid in 
the orderly liquidation of such loan.
          * * * * * * *
          (6) Disasters commencing after october 1, 1996.--
        Notwithstanding any other provision of law, the 
        interest rate on the Federal share of any loan made 
        under subsection (b)(1) and (b)(2) on account of a 
        disaster commencing on or after October 1, 1996, shall 
        be in the case of a homeowner, or business, or other 
        concern, including agricultural cooperatives, unable to 
        obtain credit elsewhere, at the rate prescribed by the 
        Administration but not more than \3/4\ of the rate 
        determined by the Secretary of the Treasury, taking 
        into consideration the current average market yield on 
        outstanding marketable obligations of the United States 
        with remaining periods to maturity comparable to the 
        average maturities of such loans plus an additional 
        charge of not to exceed 1 percent per annum as 
        determined by the Administrator, and adjusted to the 
        nearest \1/8\ of 1 percent.
          (7) Liability.--Whoever wrongfully misapplies the 
        proceeds of a loan under subsection (b) shall be liable 
        to the Administrator in an amount equal to 1\1/2\ times 
        the original principal amount of the loan.
          [(6)] (8) Notwithstanding the provisions of any other 
        law, such loans, subject to the reductions required by 
        subparagraphs (A) and (B) of paragraph 7(b)(1), shall 
        be in amounts equal to 100 per centum of loss. The 
        interest rate for loans made under paragraphs 7(b)(1) 
        and (2), as determined pursuant to paragraph (5), shall 
        be the rate of interest which is in effect on the date 
        of the disaster commenced: Provided, That no loan under 
        paragraphs 7(b) (1) and (2) shall be made, either 
        directly or in cooperation with banks or other lending 
        institutions through agreements to participate on an 
        immediate or deferred (guaranteed) basis, if the total 
        amount outstanding and committed to the borrower under 
        subsection 7(b) would exceed $500,000 for each disaster 
        unless an applicant constitutes a major source of 
        employment in an area suffering a disaster, in which 
        case the Administration, in its discretion, may waive 
        the $500,000 limitation: Provided further, That the 
        Administration, subject to the reductions required by 
        subparagraphs (A) and (B) of paragraph 7(b)(1), shall 
        not reduce the amount of eligibility for any homeowner 
        on account of loss of real estate to less than $100,000 
        for each disaster nor for any homeowner or lessee on 
        account of loss of personal property to less than 
        $20,000 for each disaster, such sums being in addition 
        to any eligible refinancing: Provided further, That the 
        Administration shall not require collateral for loans 
        of $10,000 or less which are made under paragraph (1) 
        of subsection (b). Employees of concerns sharing a 
        common business premises shall be aggregated in 
        determining ``major source of employment'' status for 
        nonprofit applicants owning such premises.
With respect to any loan which is outstanding on the date of 
enactment of this paragraph and which was made on account of a 
disaster commencing on or after October 1, 1982, the 
Administrator shall make such change in the interest rate on 
the balance of such loan as is required herein effective as of 
the date of enactment.
  [(7)] (9) The Administration shall not withhold disaster 
assistance pursuant to this paragraph to nurseries who are 
victims of drought disasters. As used in section 7(b)(2) the 
term ``an area affected by a disaster'' includes any county, or 
county contiguous thereto, determined to be a disaster by the 
President, the Secretary of Agriculture or the Administrator of 
the Small Business Administration.
  (d)[(1)] The Administration shall not fund any Small Business 
Development Center or any variation thereof, except as 
authorized in section 21 of this Act.
  [(2) The Administration is authorized to hold seminars 
throughout the Nation to make potential applicants aware of the 
opportunities available under this subsection and related 
government energy programs, and to make grants to qualified 
organizations to provide training seminars for small business 
concerns regarding practical and easily implemented methods for 
design, manufacture, installation, and servicing of equipment 
and for providing services listed in paragraph (1) of this 
subsection, except that recipients of loans made pursuant to 
this subsection shall not subsequently be eligible for such 
grants.]
  [(e) The Administration also is empowered to make loans 
(either directly or in cooperation with banks or other lenders 
through agreements to participate on an immediate or deferred 
basis) to assist any firm to adjust to changed economic 
conditions resulting from increased competition from imported 
articles, but only if (1) an adjustment proposal of such firm 
has been certified by the Secretary of Commerce pursuant to the 
Trade Expansion Act of 1962, (2) the Secretary has referred 
such proposal to the Administration under that Act and the loan 
would provide part or all of the financial assistance necessary 
to carry out such proposal, and (3) the Secretary's 
certification is in force at the time the Administration makes 
the loan. With respect to loans made under this subsection the 
Administration shall apply the provisions of sections 314, 315, 
316, 318, 319, and 320 of the Trade Expansion Act of 1962 as 
though such loans had been made under section 314 of that Act.]
  [(f) In the administration of the disaster loan program under 
subsection (b)(1) of this section, the case of property loss or 
damage as a result of a disaster which is a ``major disaster'' 
as defined in section 102(2) of the Disaster Relief and 
Emergency Assistance Act, the Small Business Administration, to 
the extent such loss or damage is not compensated for by 
insurance or otherwise, may lend to a privately owned college 
or university without regard to whether the required financial 
assistance is otherwise available from private sources, and may 
waive interest payments and defer principal payments on such a 
loan for the first three years of the term of the loan.]
  (e) [RESERVED].
  (f) [RESERVED].
          * * * * * * *
  [(l)(1) The Administration also is empowered to make loans 
(either directly or in cooperation with banks or other lending 
institutions through agreements to participate on an immediate 
or deferred basis) as the Administrator may determine to be 
necessary or appropriate to assist any small business concern 
in financing plant construction, conversion, expansion 
(including acquisition of land for such a plant), or startup, 
and the acquisition of equipment, facilities, machinery, 
supplies, or materials to enable such concern to design 
architecturally or engineer, manufacture, distribute, market, 
install, or service any of the following energy measures:
          [(A) Solar thermal energy equipment which is either 
        of the active type based upon mechanically forced 
        energy transfer or of the passive type based on 
        convective, conductive, or radiant energy transfer or 
        some combination of these types.
          [(B) Photovoltaic cells and related equipment.
          [(C) A product or service the primary purpose of 
        which is conservation of energy through devices or 
        techniques which increase the energy efficiency of 
        existing equipment, methods of operation, or systems 
        which use fossil fuels, and which is on the Energy 
        Conservation Measures List of the Secretary of Energy 
        or which the Administrator determines to be consistent 
        with the intent of this subsection.
          [(D) Equipment the primary purpose of which is 
        production of energy from wood, biological waste, 
        grain, or other biomass source of energy.
          [(E) Equipment the primary purpose of which is 
        industrial cogeneration of energy, district heating, or 
        production of energy from industrial waste.
          [(F) Hydroelectric power equipment.
          [(G) Wind energy conversion equipment.
          [(H) Engineering, architectural, consulting, or other 
        professional services which are necessary or 
        appropriate to aid citizens in using any of the 
        measures described in subparagraphs (A) through (C).
Proceeds of loans under this subsection shall not be used 
primarily for research and development.
  [(2) No loan shall be made under this subsection if the total 
amount outstanding and committed (by participation or 
otherwise) to the borrower from the business loan and 
investment fund established by this Act would exceed $500,000. 
No loan made or effected under this subsection directly or in 
cooperation with banks or other lending institution through 
agreements to participate on an immediate basis shall exceed 
$350,000.
  [(3) No financial assistance, shall be extended pursuant to 
this subsection unless the financial assistance applied for is 
not otherwise available on reasonable terms from non-Federal 
sources.
  [(4) No immediate participation may be purchased unless it is 
shown that a deferred participation is not available; and no 
loan may be made unless it is shown that a participation is not 
available.
  [(5) In agreements to participate in loans on a deferred 
basis under this subsection, the Administration's participation 
shall not be in excess of 90 per centum of the balance of the 
loan outstanding at the time of disbursement.
  [(6) The Administration's share of any loan made under this 
subsection shall bear interest at the same rate as loans made 
under subsection (a) of this section. The maximum terms of any 
such loan, including extensions and renewals, may not exceed 
fifteen years.
  [(7) All loans made under this subsection shall be of such 
sound value as reasonably to assure repayment, recognizing that 
greater risk may be associated with loans made to business 
concerns in this field: Provided, That factors in determining 
``sound value'' shall include, but not be limited to, quality 
of the product or services; technical qualifications of the 
applicant or his employees; sales projections; and the 
financial status of the business concern: Provided further, 
That such status need not be as sound as that required for 
loans under subsection (a) of this section.
  [(8)(A) The Administration, after consultation with the 
Department of Energy and other Federal departments and agencies 
as the Administrator deems appropriate, shall publish in the 
Federal Register for public comment not later than sixty days 
after the date of enactment of this subsection proposed 
regulations to carry out the provisions of this subsection. The 
Administration shall make all reasonable efforts to solicit 
comments from small businesses and shall take into 
consideration comments submitted regarding such proposed 
regulations.
  [(B) The administration shall publish final regulations under 
this subsection not later than one hundred and eighty days 
after the date of enactment of this subsection.
  [(9) It is the intent of Congress that the paperwork burden 
and regulatory impact on applicants under this subsection shall 
be minimized, and that to the maximum extent practicable, the 
Administrator may rely upon consultation with the Department of 
Energy and other agencies, upon paid consultants, and upon 
voluntary public submissions of information to obtain market 
data, industry sales projections, energy savings, and other 
economic information needed to carry out the provisions of 
section 7(l)(1) (D) and (E). Noting in this subsection shall be 
construed as precluding the Administrator from using any of his 
lawful powers to obtain information from applicants.]
  (l)(1) [RESERVED].
          * * * * * * *
  (m) Microloan Demonstration Program.--
          (1) * * *
          * * * * * * *
          (4) Marketing, management and technical assistance 
        grants to intermediaries.--Grants made in accordance 
        with subparagraph (B)(ii) of paragraph (1) shall be 
        subject to the following requirements:
                  (A) Grant amounts.--Except as otherwise 
                provided in subparagraph (C) and subject to 
                subparagraph (B), each intermediary that 
                receives a loan under subparagraph (B)(i) of 
                paragraph (1) shall be eligible to receive a 
                grant to provide marketing, management, and 
                technical assistance to small business concerns 
                that are borrowers under this subsection. 
                Except as provided in subparagraph (C), each 
                intermediary meeting the requirements of 
                subparagraph (B) may receive a grant of not 
                more than [25] 20 percent of the total 
                outstanding balance of loans made to it under 
                this subsection.
                  (B) Contribution.--As a condition of any 
                grant made under subparagraph (A), except for a 
                grant made to an intermediary that provides not 
                less than 50 percent of its loans to small 
                business concerns located in or owned by one or 
                more residents of an economically distressed 
                area, the Administration shall require the 
                intermediary to contribute an amount equal to 
                [25] 35 percent of the amount of the grant, 
                obtained solely from non-Federal sources. In 
                addition to cash or other direct funding, the 
                contribution may include indirect costs or in-
                kind contributions paid for under non-Federal 
                programs.
          * * * * * * *
  Sec. 20. (a) * * *
          * * * * * * *
  (p) The following program levels are [authorized for fiscal 
year 1997] authorized for each of fiscal years 1997 and 1998:
          (1) * * *
          * * * * * * *
          (3) For the programs authorized by title III of the 
        Small Business Investment Act of 1958, the 
        Administration is authorized to make--
                  (A) $25,000,000 in purchases of preferred 
                securities;
                  [(B) $268,000,000 in guarantees of 
                debentures, of which $48,000,000 is authorized 
                in guarantees of debentures from companies 
                operating pursuant to section 301(d) of such 
                Act; and]
                  (B) $268,000,000 in guarantees of debentures; 
                and
                  (C) $900,000,000 in guarantees of 
                participating securities.
          * * * * * * *
  (q)(1) There are authorized to be appropriated to the 
Administration for [fiscal year 1997] each of fiscal years 1997 
and 1998 such sums as may be necessary to carry out the 
provisions of this Act, including administrative expenses and 
necessary loan capital for disaster loans pursuant to section 
7(b), and to carry out the provisions of the Small Business 
Investment Act of 1958, including salaries and expenses of the 
Administration.
  (2) Notwithstanding paragraph (1), for fiscal [year 1997] 
years 1997 and 1998--
          (A) * * *
          * * * * * * *
  Sec. 21. (a) * * *
          * * * * * * *
  (c)(1) * * *
          * * * * * * *
    (7) The [Deputy Associate Administrator of the Small 
Business Development Center program] Associate Administrator 
for Small Business Development Centers, in consultation with 
the Small Business Development Centers, shall develop and 
implement an information sharing system. Subject to amounts 
approved in advance in appropriations Acts, the Administration 
may make grants or enter cooperative agreements with one or 
more centers to carry out the provisions of this paragraph. 
Said grants or cooperative agreements shall be awarded for 
periods of no more than five years duration. The matching funds 
provisions of subsection (a) shall not be applicable to grants 
or cooperative agreements under this paragraph. The system 
shall--
          (A) * * *
          * * * * * * *
  [(h)(1) The Administrator shall appoint a Deputy Associate 
Administrator for Management Assistance who shall report to the 
Associate Administrator for Management Assistance and who shall 
serve without regard to the provisions of title 5, United 
States Code, governing appointments in the competitive service, 
and without regard to chapter 51, and subchapter III of chapter 
53 of such title relating to classification and General 
Schedule pay rates, but at a rate not less than the rate of GS-
17 of the General Schedule.
  [(2) The sole responsibility of the Deputy Associate 
Administrator for Management Assistance shall be to administer 
the small business development center program. Duties of the 
position shall include, but are not limited to, recommending 
the annual program budget, reviewing the annual budgets 
submitted by each applicant, establishing appropriate funding 
levels therefore, selecting applicants to participate in this 
program, implementing the provisions of this section, 
maintaining a clearinghouse to provide for the dissemination 
and exchange of information between small business development 
centers and conducting audits of recipients of grants under 
this section. The Deputy Associate Administrator for Management 
Assistance shall confer with the seek the advice and counsel of 
the Board in carrying out the responsibilities described in 
this subsection.]
  (h) Associate Administrator for Small Business Development 
Centers.--
          (1) Appointment and compensation.--The Administrator 
        shall appoint an Associate Administrator for Small 
        Business Development Centers who shall report to an 
        official who is not more than one level below the 
        Office of the Administrator and who shall serve without 
        regard to the provisions of title 5 governing 
        appointments in the competitive service, and without 
        regard to chapter 51, and subchapter III of chapter 53 
        of such title relating to classification and General 
        Schedule pay rates, but at a rate not less than the 
        rate of GS-17 of the General Schedule.
          (2) Duties.--
                  (A) In general.--The sole responsibility of 
                the Associate Administrator for Small Business 
                Development Centers shall be to administer the 
                small business development center program. 
                Duties of the position shall include, but are 
                not limited to, recommending the annual program 
                budget, reviewing the annual budgets submitted 
                by each applicant, establishing appropriate 
                funding levels therefore, selecting applicants 
                to participate in this program, implementing 
                the provisions of this section, maintaining a 
                clearinghouse to provide for the dissemination 
                and exchange of information between small 
                business development centers and conducting 
                audits of recipients of grants under this 
                section.
                  (B) Consultation requirements.--In carrying 
                out the duties described in this subsection, 
                the Associate Administrator shall confer with 
                and seek the advice of the Board established by 
                subsection (i) and Administration officials in 
                areas served by the small business development 
                centers; however, the Associate Administrator 
                shall be responsible for the management and 
                administration of the program and shall not be 
                subject to the approval or concurrence of such 
                Administration officials.
  (i)(1) There is established a National Small Business 
Development Center Advisory Board (herein referred to as 
``Board'') which shall consist of nine members appointed from 
civilian life by the Administrator and who shall be persons of 
outstanding qualifications known to be familiar and sympathetic 
with small business needs and problems. No more than three 
members shall be from universities or their affiliates and six 
shall be from small businesses or associations representing 
small businesses. At the time of the appointment of the Board, 
the Administrator shall designate one-third of the members and 
at least one from each category whose term shall end in two 
years from the date of appointment, a second third whose term 
shall end in three years from the date of appointment, and the 
final third whose term shall end in four years from the date of 
appointment. Succeeding Boards shall have three-year terms, 
with one-third of the Board changing each year.
  (2) The Board shall elect a Chairman and advise, counsel, and 
confer with the [Deputy Associate Administrator for Management 
Assistance] Associate Administrator for Small Business 
Development Centers in carrying out the duties described in 
this section. The Board shall meet at least semiannually and at 
the call of the Chairman of the Board. Each member of the Board 
shall be entitled to be compensated at the rate not in excess 
of the per diem equivalent of the highest rate of pay for 
individuals occupying the position under GS-18 of the General 
Schedule for each day engaged in activities of the Board and 
shall be entitled to be reimbursed for expenses as a member of 
the Board.
          * * * * * * *
  (k) Program Examination and Certification.--
          (1) * * *
          * * * * * * *
          [(3) Extension or renewal of cooperative 
        agreements.--In extending or renewing a cooperative 
        agreement of a small business development center, the 
        Administration shall consider the results of the 
        examination and certification program conducted 
        pursuant to paragraphs (1) and (2).]
          (3) Extension or renewal of cooperative agreements.--
                  (A) In general.--In extending or renewing a 
                cooperative agreement of a small business 
                development center, the Administration shall 
                consider the results of the examination and 
                certification program conducted pursuant to 
                paragraphs (1) and (2).
                  (B) Certification requirement.--After 
                September 30, 2000, the Administration may not 
                renew or extend any cooperative agreement with 
                a small business development center unless the 
                center has been approved under the 
                certification program conducted pursuant to 
                this subsection; except that the Associate 
                Administrator for Small Business Development 
                Centers may waive such certification 
                requirement, in the discretion of the Associate 
                Administrator, upon a showing that the center 
                is making a good faith effort to obtain 
                certification.
  [(l) The authority to enter into contracts shall be in effect 
for each fiscal year only to the extent or in the amounts as 
are provided in advance in appropriations Acts.]
  (l) Contract Authority.--The authority to enter into 
contracts shall be in effect for each fiscal year only to the 
extent and in the amounts as are provided in advance in 
appropriations Acts. After the administration has entered a 
contract, either as a grant or a cooperative agreement, with 
any applicant under this section, it shall not suspend, 
terminate, or fail to renew or extend any such contract unless 
the Administration provides the applicant with written 
notification setting forth the reasons therefore and affording 
the applicant an opportunity for a hearing, appeal, or other 
administrative proceeding under the provisions of chapter 5 of 
title 5, United States Code.
          * * * * * * *
                              ----------                              


    SMALL BUSINESS COMPETITIVENESS DEMONSTRATION PROGRAM ACT OF 1988

          * * * * * * *

    TITLE VII--SMALL BUSINESS COMPETITIVENESS DEMONSTRATION PROGRAM

          * * * * * * *

                     Part B--Demonstration Program

SEC. 711. SMALL BUSINESS COMPETITIVENESS DEMONSTRATION PROGRAM.

  (a) * * *
          * * * * * * *
  (c) Program Term.--The Program shall be conducted over a 
period of 4 years, beginning on January 1, 1989, and ending on 
September 30, [1996] 2000.
          * * * * * * *

SEC. 714. REPORTING.

  (a) * * *
          * * * * * * *
  (b) Subcontracting Activity.--The Administrator for Federal 
Procurement Policy shall devise and implement, during the term 
of the Program, a simplified system to test the collection, 
reporting, and monitoring of data on subcontract awards to 
small business concerns and small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals for--
          (1) * * *
          * * * * * * *
          [(5) Duration.--The system described in subsection 
        (a) shall be established not later than October 1, 1992 
        (or as soon as practicable thereafter on the first day 
        of a subsequent quarter of fiscal year 1993), and shall 
        terminate on September 30, 1993.]
          (5) Duration.--The system described in subsection (a) 
        shall be established not later than October 1, 1996 (or 
        as soon as practicable thereafter on the first day of a 
        subsequent quarter of fiscal year 1997), and shall 
        terminate on September 30, 2000.
          * * * * * * *

SEC. 716. REPORT TO CONGRESS.

  (a) In General.--Within 180 days after data for [fiscal year 
1991 and 1995] each of fiscal years 1991 through 1999 are 
available from the Federal Procurement Data Center, the 
Administrator for Federal Procurement Policy shall report the 
cumulative results of the Small Business Competitiveness 
Demonstration Program to the Committees on Small Business of 
the Senate and House of Representatives, to the Committee on 
Governmental Affairs of the Senate, and to the Committee on 
Government Operations of the House of Representatives. The 
views of the Administrator of the Small Business Administration 
shall be included in the report.
          * * * * * * *
  (c) Recommendations.--To the extent the results of the 
Program demonstrate sufficiently high small business 
participation based on unrestricted contract competition in the 
designated industry groups, the report to be submitted during 
calendar year [1996] 1999 shall include recommendations (if 
appropriate) for changes in legislation or modifications of 
procurement regulations aimed at increasing reliance on 
unrestricted competition if high rates of small business 
participation in the Federal procurement market can be 
maintained.

SEC. 717. DESIGNATED INDUSTRY GROUPS.

  (a) In General.--For the purposes of participation in this 
Program, the designated industry groups are--
          (1) construction (excluding dredging);
          (2) refuse systems and related services;
          (3) [architectural and engineering services 
        (including surveying and mapping)] architectural and 
        engineering services (including surveying, mapping, and 
        landscape architecture); and
          (4) non-nuclear ship repair.
  (b) Construction.--Construction shall include contract awards 
assigned one of the standard industrial classification codes 
that comprise--
          (1) Major Group 15 (Building Construction--General 
        Contractors and Operative Builders),
          (2) Major Group 16 (Construction Other Than Building 
        Construction--General Contractors and Dredging), and
          (3) Major Group 17 (Construction--Special Trade 
        Contractors).
  (c) Refuse.--Refuse systems and related services shall 
include contract awards assigned to standard industrial 
classification code 4212 or 4953.
  (d) Architectural and Engineering.--[Architectural and 
engineering services (including surveying and mapping)] 
Architectural and engineering services (including surveying, 
mapping, and landscape architecture) shall include contract 
awards assigned to standard industrial classification code 7389 
(if identified as pertaining to mapping services), standard 
industrial classification codes 0781 (if identified as 
pertaining to architecture services), 8711, 8712, or 8713.
          * * * * * * *
                              ----------                              


        SMALL BUSINESS GUARANTEED CREDIT ENHANCEMENT ACT OF 1993

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Small 
Business Guaranteed Credit Enhancement Act of 1993''.
  (b) Table of Contents.--The table of contents for this Act is 
as follows:

Sec. 1. Short title; table of contents.
     * * * * * * *
[Sec. 7. Repealer.]
          * * * * * * *

[SEC. 7. REPEALER.

  [Sections 3 and 5 of this Act are hereby repealed on 
September 30, 1996.]
                              ----------                              


                 SMALL BUSINESS INVESTMENT ACT OF 1958

          * * * * * * *

             TITLE III--SMALL BUSINESS INVESTMENT COMPANIES

          * * * * * * *

SEC. 321. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

  (a) * * *
          * * * * * * *
  (f)(1) The Administration shall provide for a central 
registration of all trust certificates sold pursuant to this 
section. [Such central registration shall include with respect 
to each sale--
          [(A) identification of each small business investment 
        company;
          [(B) the interest rate or prioritized payment rate 
        paid by the small business investment company;
          [(C) commissions, fees, or discounts paid to brokers 
        and dealers in trust certificates;
          [(D) identification of each purchaser of the trust 
        certificate;
          [(E) the price paid by the purchaser for the trust 
        certificate;
          [(F) the interest rate on the trust certificate;
          [(G) the fee of any agent for carrying out the 
        functions described in paragraph (2); and
          [(H) such other information as the Administration 
        deems appropriate.]
          * * * * * * *
  (5) Nothing in this subsection shall prohibit the use of a 
book-entry or other electronic form of registration for trust 
certificates.
          * * * * * * *

                       TITLE IV--LEASE GUARANTEES

          * * * * * * *

                     Part B--Surety Bond Guarantees

  Sec. 411. (a)(1) The Administration may, upon such terms and 
conditions as it may prescribe, guarantee and enter into 
commitments to guarantee any surety against loss resulting from 
a breach of the terms of a bid bond, payment bond, performance 
bond, or bonds ancillary thereto, by a principal on any 
contract up to $1,250,000.
          * * * * * * *
  (5)(A) The Administration shall promptly act upon an 
application from a surety to participate in the Preferred 
Surety Bond Guarantee Program, authorized by paragraph (3), in 
accordance with criteria and procedures established in 
regulations pursuant to subsection (d).
  (B) The Administration is authorized to reduce the allotment 
of bond guarantee authority or terminate the participation of a 
surety in the Preferred Surety Bond Guarantee Program based on 
the rate of participation of such surety during the 4 most 
recent fiscal year quarters compared to the median rate of 
participation by the other sureties in the program.
          * * * * * * *

        TITLE V--LOANS TO STATES AND LOCAL DEVELOPMENT COMPANIES

          * * * * * * *

  LOANS FOR PLANT ACQUISITION, CONSTRUCTION, CONVERSION, AND EXPANSION

  Sec. 502. The Administration may, in addition to its 
authority under section 501, make loans for plant acquisition, 
construction, conversion or expansion, including the 
acquisition of land, to State and local development companies, 
and such loans may be made or effected either directly or in 
cooperation with banks or other lending institutions through 
agreements to participate on an immediate or deferred basis: 
Provided, however, That the foregoing powers shall be subject 
to the following restrictions and limitations:
          (1) * * *
          * * * * * * *
          [(3) Any development company assisted under this 
        section must meet criteria established by the 
        Administration, including the extent of participation 
        to be required or amount of paid-in capital to be used 
        in each instance as is determined to be reasonable by 
        the Administration, Community injection funds may be 
        derived, in whole or in part, from--
                  [(A) State or local governments;
                  [(B) banks or other financial institutions;
                  [(C) foundations or other not-for-profit 
                institutions; or
                  [(D) a small business concern (or its owners, 
                stockholders, or affiliates) receiving 
                assistance through bodies authorized under this 
                title.]
          (3) Criteria for assistance.--
                  (A) In general.--Any development company 
                assisted under this section or section 503 of 
                this title must meet the criteria established 
                by the Administration, including the extent of 
                participation to be required or amount of paid-
                in capital to be used in each instance as is 
                determined to be reasonable by the 
                Administration.
                  (B) Community injection funds.--
                          (i) Sources of funds.--Community 
                        injection funds may be derived, in 
                        whole or in part, from--
                                  (I) State or local 
                                governments;
                                  (II) banks or other financial 
                                institutions;
                                  (III) foundations or other 
                                not-for-profit institutions; or
                                  (IV) the small business 
                                concern (or its owners, 
                                stockholders, or affiliates) 
                                receiving assistance through a 
                                body authorized by this title.
                          (ii) Funding from institutions.--Not 
                        less than 50 percent of the total cost 
                        of any project financed pursuant to 
                        clauses (i), (ii), or (iii) of 
                        subparagraph (C) shall come from the 
                        institutions described in subclauses 
                        (I), (II), and (III) of clause (i).
                  (C) Funding from a small business concern.--
                The small business concern (or its owners, 
                stockholders, or affiliates) receiving 
                assistance through a body authorized by this 
                title shall provide--
                          (i) at least 15 percent of the total 
                        cost of the project financed, if the 
                        small business concern has been in 
                        operation for a period of 2 years or 
                        less;
                          (ii) at least 15 percent of the total 
                        cost of the project financed if the 
                        project involves the construction of a 
                        limited or single purpose building or 
                        structure;
                          (iii) at least 20 percent of the 
                        total cost of the project financed if 
                        the project involves both of the 
                        conditions set forth in clauses (i) and 
                        (ii); or
                          (iv) at least 10 percent of the total 
                        cost of the project financed, in all 
                        other circumstances, at the discretion 
                        of the development company.
          * * * * * * *

                     development company debentures

  Sec. 503. (a) * * *
  (b) No guarantee may be made with respect to any debenture 
under subsection (a) unless--
          (1) * * *
          * * * * * * *
          (7) with respect to each loan made from the proceeds 
        of such debenture, the Administration--
                  (A) assesses and collects a fee, which shall 
                be payable by the borrower, in an amount equal 
                to [0.125] 0.8125 percent per year of the 
                outstanding balance of the loan; and
                  (B) uses the proceeds of such fee to offset 
                the cost (as such term is defined in section 
                502 of the Federal Credit Reform Act of 1990) 
                to the Administration of making guarantees 
                under subsection (a).
          * * * * * * *
  (d) Charges for Administration Expenses.--
          (1) Level of charges.--The Administration may impose 
        an additional charge for administrative expenses with 
        respect to each debenture for which payment of 
        principal and interest is guaranteed under subsection 
        (a).
          (2) Participation fee.--The Administration shall also 
        impose a one-time fee of 50 basis points on the total 
        participation in any project of any institution 
        described in subclause (I), (II), or (III) of section 
        502(3)(B)(i). Such fee shall be imposed only when the 
        participation of the institution will occupy a senior 
        credit position to that of the development company. 
        Such fee shall be collected by the development company, 
        forwarded to the Administration, and used to offset the 
        cost (as such term is defined in section 502 of the 
        Credit Reform Act of 1990) to the Administration of 
        making guarantees under subsection (a).
          (3) Development company fee.--The Administration 
        shall collect annually from each development company a 
        fee of 0.125 percent of the outstanding principal 
        balance of any guaranteed debenture authorized by the 
        Administration after September 30, 1996. Such fee shall 
        be derived from the servicing fees collected by the 
        development company pursuant to regulation, and shall 
        not be derived from any additional fees imposed on 
        small business concerns. All proceeds of the fee shall 
        be used to offset the cost (as such term is defined in 
        section 502 of the Credit Reform Act of 1990) to the 
        Administration of making guarantees under subsection 
        (a).
          * * * * * * *
  (f) Effective Date.--The fees authorized by subsections (b) 
and (c) shall apply to financings approved by the 
Administration on or after October 1, 1996, but shall not apply 
to financings approved by the Administration on or after 
October 1, 1997.
  (g) Required Actions Upon Default.--
          (1) Deadlines.--
                  (A) Initial actions.--Not later than the 45th 
                day after the date on which a payment on a loan 
                funded through a debenture guaranteed under 
                this section is due and not received, the 
                Administration shall--
                          (i) take all necessary steps to bring 
                        such a loan current; or
                          (ii) implement a formal written 
                        deferral agreement.
                  (B) Purchase or acceleration of debenture.--
                Not later than the 65th day after the date on 
                which a payment on a loan described in 
                subparagraph (A) is due and not received, and 
                absent a formal written deferral agreement, the 
                Administration shall take all necessary steps 
                to purchase or accelerate the debenture.
          (2) Prepayment penalties.--The Administration shall, 
        with respect to the portion of any project derived from 
        funds set forth in section 502(3)--
                  (A) negotiate the elimination of any 
                prepayment penalties or late fees on defaulted 
                loans made prior to September 30, 1996;
                  (B) decline to pay any prepayment penalty or 
                late fee on the default based purchase of loans 
                issued after September 30, 1996; and
                  (C) for any project financed after September 
                30, 1996, decline to pay any default interest 
                rate higher than the interest rate on the note 
                prior to the date of default.
          * * * * * * *

                         pooling of debentures

  Sec. 505. (a) * * *
          * * * * * * *
  (f)(1) The Administration shall--
  [(1) provide for a central registration of all trust 
certificates sold pursuant to this section; such central 
registration shall include with respect to each sale, 
identification of each development company; the interest rate 
paid by the development company; commissions, fees, or 
discounts paid to brokers and dealers in trust certificates; 
identification of each purchaser of the trust certificate; the 
price paid by the purchaser for the trust certificate; the 
interest rate paid on the trust certificate; the fees of any 
agent for carrying out the functions described in paragraph 
(2); and such other information as the Administration deems 
appropriate;]
          (A) provide for a central registration of all trust 
        certificates sold pursuant to this section;
          [(2)] (B) contract with an agent to carry out on 
        behalf of the Administration the central registration 
        functions of this section and the issuance of trust 
        certificates to facilitate poolings; such agent shall 
        provide a fidelity bond or insurance in such amounts as 
        the Administration determines to be necessary to fully 
        protect the interests of the Government;
          [(3)] (C) prior to any sale, require the seller to 
        disclose to a purchaser of a trust certificate issued 
        pursuant to this section, information on the terms, 
        conditions, and yield of such instrument; and
          [(4)] (D) have the authority to regulate brokers and 
        dealers in trust certificates sold pursuant to this 
        section.
  (2) Nothing in this subsection shall prohibit the utilization 
of a book entry or other electronic form of registration for 
trust certificates.
          * * * * * * *
                  ADDITIONAL VIEWS OF JOHN J. LaFALCE

     I am generally supportive of the provisions of this bill, 
the Small Business Programs Improvement Act of 1996. It has 
been improved considerably during the Committee's 
consideration, and I appreciate the consideration of the 
Committee, and its Chair, Mrs. Meyers, in examining the matters 
raised by me and other Members of the Minority.
     There remain, however, three matters which are 
particularly troubling. It is my hope that they will be 
subsequently addressed by the House.
     The first is the amount of 7(a) loan guarantees which will 
be made available in fiscal year 1997; the second is the amount 
of certified development company debentures which will be made 
available in fiscal year 1997; and the third is the extent to 
which the Small Business Administration is required to delegate 
its authority to liquidate SBA guaranteed financings in the 
event such action is necessary.

                          7(a) loan guarantees

     The primary financial assistance program operated by the 
Small Business Administration is the 7(a) loan guarantee 
program. Under this program, SBA guarantees to reimburse a 
lender for between 75% and 80% of any loss sustained by the 
lender on a loan made to a small business.
     The cost of the program is partially paid by the 
appropriation of Federal money. The balance is from fees paid 
by both the borrower and the lender.
     Legislation enacted last year increased the amount of fees 
to be paid by the borrower. Except on loans of less than 
$80,000, borrowers now pay between 3% and 3.875%, depending 
upon the size of the loan. In addition, the lender must pay, 
and absorb as part of its cost of doing business, an annual fee 
of .5% or one-half of one percent.
     During the current fiscal year, 1996, the Office of 
Management and Budget, determined that operation of the 7(a) 
program, including these fees, would result in a subsidy rate 
of 1.06%. This rate determines the amount which must be 
appropriated in order to operate the program.
     As a result of a major study of the 7(a) program, OMB 
determined that this rate would increase substantially for 
fiscal year 1997 to 2.68%. And the President proposed full 
funding at the new higher rate, even though it necessitated the 
budgeting of an additional $170 million.
     The Republican majority on the Appropriations' Committee 
rejected this proposal. Instead, it provided a slight 
additional amount of funding above the 1996 level. It is my 
understanding that the proposed Federal funding, when added to 
funds expected to be unused this year, will result in a 7(a) 
program level next year of $6.5 billion.
     On the other hand, demand is expected to be approximately 
$8.5 billion, a shortfall of $2 billion.
     I believe that it is our responsibility to address this 
problem; we cannot simply sit back and argue that the 
Appropriations Committee did not provide enough money.
     I would hope that as the 1997 appropriations bill moves 
through the Congress additional monies could be provided--about 
an additional $50 million would allow the program to fund an 
additional $2 billion in guarantees. But I do not believe that 
we can rely upon this hope.
     This program was underfunded in 1995. The result was 
chaos. The loan window opened and closed. Finally, OMB dictated 
the result: stretch the available money by reducing the maximum 
loan per borrower. SBA then made the necessary reduction and 
refused any loan in excess of one-half of the statutory maximum 
of $750,000.
     I believe it would be unconscionable to allow this 
situation to repeat itself.
     I reluctantly supported the fees legislated last year. It 
seemed to me to be a choice between imposing the fees and 
denying small businesses access to a Federally guaranteed loan 
program.
     I believe that we are confronted with the same problem 
this year, although on a much smaller scale. It is my 
understanding that an increase of \1/12\ of 1% in the annual 
lender fee would generate sufficient income to restore 
approximately $2 billion in guarantees.
     This minute increase would amount to less than $100 per 
year on the average loan, and it would decrease each year as 
the fee is applied to the outstanding balance of the loan which 
is being reduced each year.
     I urge my colleagues to reconsider this very meager fee 
increase which was rejected by the Republican majority on the 
Committee.

                       development company loans

     Small businesses in need of long term financing for plant 
and equipment needs frequently utilize the development company 
loan program or 504 program.
    Under this program, the small business borrower puts up at 
least 10%, a bank provides 50% and receives a first lien 
position, and a private investor provides the other 40% by 
purchasing a debenture issued by a certified development 
company which is guaranteed by the SBA.
    During the current fiscal year, it has been assumed that 
program participants were fully paying the cost of the program; 
the OMB approved subsidy rate was set at zero, and no 
appropriation of funds was necessary to support the program.
    This subsidy rate will increase from zero to 6.85% for 
1997, again as a result of the recently completed study of the 
losses in this program.
    The President's budget addressed this need for Federal 
funding by requesting a change in the nature of the program 
funding--reverting to direct Treasury funding instead of the 
more costly use of the debenture guarantee process. This change 
would be accompanied by the imposition of a fee equal to the 
administrative cost of selling the debentures to private 
investors, thus resulting in no increase in total cost to 
borrowers, but reducing the subsidy rate to zero.
    The majority Members of both the Appropriations Committee 
and the Small Business Committee rejected this proposed return 
to direct Treasury funding. And I must admit I have very 
serious qualms about the proposal as I see it as a temporary 
solution--the current use of the private markets is the long 
range solution and ultimately we would seek to return to it.
    But when the Appropriations Committee refused to 
appropriate any money for the 504 program, there appeared to be 
only one immediate answer: impose fees, at least for one year.
    I agree with the majority on most of the fee provisions--a 
fee of \1/8\ of 1% to be paid by the certified development 
company as part of its cost of doing business; and a fee of 
one-half of one percent to be paid by the lender who was taking 
a first lien position on its one- half of the project cost.
    The disagreement is over the amount of the fee to be paid 
by the borrower. Initially, based upon information received 
from SBA, I believed that an annual fee of \13/16\ of 1%, when 
added to the other fees, would be sufficient to reduce the 
subsidy rate to zero and allow the program to operate without 
the appropriation of any Federal funds to pay losses.
    Reluctantly, Mrs. Meyers and I agreed to impose a fee of 
this amount. Minutes before the Committee mark-up, however, 
representatives of OMB suddenly decreed that this amount would 
not be sufficient. Another \2/16\ would be needed to reach 
zero.
    I saw no other solution. The Appropriations' Committee was 
not appropriating any money. Either we would have to increase 
the borrower's fee to \15/16\ or there would be no program. The 
result would not be a reduced program; the total absence of 
Federal funding would mean no program whatsoever, unless fee 
income reduced the cost to zero to equate with the complete 
absence of Federal dollars.
    Due to Republican opposition, I withdrew the amendment. The 
net result: unless we appropriate Federal money, about $21 
million, or we impose further fee increases to yield the same 
amount, there will be no program next year. That result, to me, 
is completely unacceptable.

                            Loan Liquidation

    Under current practice, when an SBA financing defaults and 
there does not appear to be any other recourse, SBA begins a 
liquidation process and attempts to recover some of what it is 
owed. For the most part, this process is carried out by SBA 
employees, with additional support from U.S. attorneys if 
judicial action is required.
    As part of the loan approval process, SBA stratifies its 
lenders. Some 7,900 lenders submit guarantee requests under the 
7(a) program annually.
    Of these 7,900, however, some 1,500 have demonstrated their 
knowledge of SBA requirements and have been designated by SBA 
as ``certified lenders''. This designation moves their loan 
guarantee requests to the front of the processing line and they 
receive expedited consideration.
    Another 440 have reached the top plateau: designation as a 
preferred lender which receives delegated authority to approve 
a government guarantee on behalf of the Agency. This 
designation, however, involves lender acceptance of additional 
responsibility. The lender, subject to SBA approval, must 
liquidate its defaulted loans.
    It is believed that part of the increase in the subsidy 
rate for 1997 for both the 7(a) and 504 programs is 
attributable to a decline in amounts recovered by SBA during 
the liquidation process. Particularly in view of repeated 
reductions in SBA staff, it is not likely that additional SBA 
personnel can be made available to assist in this effort.
    One alternative would be the delegation of more liquidation 
authority to those lenders who originated the financing. The 
bill moves in this direction, but I am concerned that we do so 
in a prudent manner.
    On the one hand, I am convinced that government employees 
probably liquidate loans at less cost than would be involved in 
reimbursing a lender to employ private attorneys. On the other 
hand, private attorneys would probably liquidate assets more 
promptly and thus arguably improve the government's recovery, 
even if they do cost more.
    The key issue is whether improved recoveries will exceed 
the anticipated higher costs.
    These assumptions should be tested on a pilot basis. If 
they are wrong, the subsidy rate will go even higher. And, in 
addition, not every lender should be allowed to liquidate, 
particularly those with no liquidation experience.
    Among the related provisions of this bill are three tests 
of the delegation of this liquidation authority.
    The first is the complete delegation of this authority to 
preferred lenders. Since these are supposedly the best lenders, 
they probably are the most competent to perform liquidations, 
and they have agreed to do so. Thus I believe it reasonable to 
eliminate the need for them to obtain any SBA approval of 
specific actions they propose to take.
    The second is the establishment of a pilot program to test 
liquidation by some certified development companies or CDCs. 
Under the bill, about 40 of the largest CDCs would be allowed 
to test their ability to liquidate failed loans, unless SBA 
determines on a case by case basis that a particular CDC should 
not participate.
    Again, I am supportive of this test, although I would 
stress that it is a test and involves CDCs in a process in 
which they have never participated on behalf of SBA. I do not 
believe that it is necessary to involve so many companies in 
order to test the concept, and thus I hope SBA will keep the 
participation level closer to the minimum number of 15 which is 
prescribed in the bill.
    Third and finally is the involvement of certified lenders, 
a provision which was added by amendment in committee.
    I believe that there is a limit to the number of new 
initiatives which SBA should be directed to undertake 
simultaneously, particularly when we are also directing it to 
cut employment and thus do more with less.
    I believe this bill more than reaches this limit. It 
exceeds it. I do not believe that it is reasonable to mandate 
SBA to add another 1,500 lenders to those to whom it will 
delegate liquidation authority. It becomes even more impossible 
when it is done under a mandate to the Agency to either 
disapprove a proposal by a certified lender within 3 days or be 
deemed to have approved it.
    Testing of proposals to delegate authority to the private 
sector appears to be a reasonable response to the reduction in 
Federal employment. But, the private sector does not always do 
best in each and every instance and thus unbridled delegation 
to untested participants could result in test failures and an 
increase in Federal loan losses.
    I would urge deliberative reconsideration.

                                                   John J. LaFalce.
                  ADDITIONAL VIEWS OF JAMES M. TALENT

    Last year, in response to strong loan demand and tight 
fiscal constraints, Congress lowered loan guarantees and raised 
fees on borrowers and lenders participating in SBA's Section 
7(a) loan program. As a result of these actions, the cost of 
the 7(a) program to taxpayers was reduced dramatically, 
allowing Congress to fund a 50% increase in small business 
lending. These changes involved a delicate balancing of the 
interest of borrowers, lenders and the long term health of the 
7(a) loan portfolio. At that time, it was believed that those 
program changes could place the 7(a) program on a sound 
foundation that would permit future loan availability and 
growth despite tightening funding constraints.
    Unfortunately, the Administration's 1997 budget revealed 
yet another surprise hike in the 7(a) subsidy. OMB and SBA 
explained that, although default trends continued to improve, 
the 7(a) portfolio had slightly underperformed previous 
historical estimates. Under the new subsidy rate of 2.68%--more 
than two-and-one-half times the FY96 rate--it would require a 
$180 million increase in the subsidy appropriation just to keep 
the 7(a) program at its current loan volume of $11 billion. 
Such an increase in spending in the current fiscal environment 
is impossible, and severely complicates Congressional efforts 
to meet small business demand for the type of long-term credit 
the 7(a) program was designed to provide. Although I have many 
questions concerning the calculations that lie behind the OMB 
and SBA's dramatic hike in the 7(a) subsidy, one think it 
clearly reveals is that this program requires tight supervision 
and major improvements in its own risk management.
    I commend the Committee's legislation as it takes needed 
steps to reform the 7(a) program. In the future, we may need to 
consider changes to the SBA that reduce our reliance on SBA 
employees to perform basic loan transaction activity, such as 
loan processing, servicing liquidation. These activities can be 
performed more efficiently and effectively by private lenders. 
Such a change will free up SBA staff to perform regular lender 
examinations and to improve SBA's oversight of its loan 
portfolios. For example, I would like to see us place far more 
emphasis on the preferred lender program, which has already 
proven itself to be a very effective way to reduce SBA losses. 
Additionally, some further reductions in the guarantee 
percentages may also be necessary to keep the program funded to 
meet current demand.
    We need to recognize that the SBA has failed to maintain an 
organization capable of effectively delivering its programs. In 
recent years, we have listened to SBA officials describe plans 
to streamline the agency, highlighted by its centralized loan 
servicing centers, its centralized loan processing centers, and 
its PLP examination center. While these initiatives sound good, 
implementation has either halted or it never began. For 
example, last fall SBA received the necessary reprogramming 
authorization from the House and Senate Appropriations 
Committees to open two pilot LowDoc Processing Centers. Now, 
almost one year later, neither center has been opened nor have 
sites even been announced.
    With respect to particular provisions contained in the 
present legislation, as passed by the Committee, I have a 
number of observations. With respect to the issue of 
securitization and the ability of both bank and non-bank 
lenders to benefit from access to the secondary market, I have 
continuing concerns with the approach which was ultimately 
adopted by the Committee. First of all, I believe it may be 
necessary for Congress to give the SBA further direction on 
this issue, as it seems somewhat incongruous to call for parity 
between banks and non-banks and at the same time permit SBA to 
regulate in this area on a lender-by-lender basis. While these 
may not be mutually exclusive goals, they do leave room for 
some mischief by the agency. I think a possible way to approach 
this would be to clarify that securitizations that are granted 
an investment-grade rating by nationally recognized bond rating 
firms, such as Moodys and Standard and Poor, should be granted 
something in the way of a ``safe harbor'' from SBA hold-back 
for those securitization that are unrated. This approach would 
(1) clearly not discriminate between banks and non-banks, (2) 
take advantage of the investment-grade rating status to 
minimize the amount of SBA administrative time spent reviewing 
securitization, and (3) still allow the issuance of unrated 
securitization. Nevertheless, I appreciate the changes made 
during the Committee's mark-up, and look forward to working on 
this issue in the future.
    With respect to disaster loan serving, the Committee's 
approach to utilizing private servicing for loans directly held 
by the SBA is commendable. I would have preferred to have 
chosen a percentage of the portfolio to ensure that there are a 
number of qualified private vendors who can justify 
establishing a loan servicing infrastructure specific to these 
SBA loans. And I believe the Committee may want to consider 
expanding private servicing in the near future. I also believe 
the Committee should work to ensure that the comparable 
analysis of the contracts are credible. This will only happen 
if conducted by third parties (e.g., GAO). Clearly, an SBA in-
house analysis can not be the final word. Additionally, care 
should be taken to give the selected contractors two years of 
performance after the successful transfer of servicing data 
before any performance comparison is conducted. The possibly 
complex process of transferring not only the payment 
information but underlying details on loan collateral status 
and location should not be underestimated.

                                                   James M. Talent.