[Senate Report 111-342]
[From the U.S. Government Publishing Office]


                                                       Calendar No. 634
111th Congress                                                   Report
                                 SENATE
 2d Session                                                     111-342
======================================================================
 
     SMALL BUSINESS JOB CREATION AND ACCESS TO CAPITAL ACT OF 2009

                                _______
                                

               September 29, 2010.--Ordered to be printed

                                _______
                                

        Ms. Landrieu, from the Committee on Small Business and 
               Entrepreneurship, submitted the following

                              R E P O R T

                         [To accompany S. 2869]

    On December 17, 2009, the Senate Committee on Small 
Business and Entrepreneurship (``the Committee'') reported, on 
a vote of 17-1, S. 2869, the ``Small Business Job Creation and 
Access to Capital Act of 2009,'' a bill to increase loan limits 
for small business concerns; to provide for low interest 
refinancing for small business concerns; and for other 
purposes. Having considered S. 2869, the Committee reports 
favorably thereon with an amendment and recommends that the 
bill (as amended) pass.

                            I. INTRODUCTION

    The Small Business Job Creation and Access to Capital Act 
of 2009 (S. 2869) is a bill to permanently increase SBA loan 
limits, to provide for low interest refinancing for small 
businesses for a two-year period after enactment, and for other 
purposes.
    This bipartisan bill, reported out of Committee by a vote 
of 17-1, was introduced by Senator Landrieu on December 10, 
2009. In accordance with Senate procedure, original bills 
reported from a Committee may only be introduced by one 
Senator. Members of the Committee wishing to cosponsor the bill 
include: Senators Snowe, Kerry, Shaheen, Lieberman, Levin, 
Pryor, Bayh, Isakson, Cardin, and Cantwell. Other Senators 
cosponsoring the bill include: Senators Bennet, Bingaman, 
Boxer, Burris, Casey, Dorgan, Feinstein, Johanns, Johnson, 
Klobuchar, Lincoln, McCaskill, Merkley, Murray, Specter, 
Stabenow and Udall. In total, 27 Senators cosponsored the bill.
    During the markup of the bill, the Committee adopted a 
Manager's Amendment that included a modified amendment 
submitted by Senator Levin and a modified amendment submitted 
by Senator Thune. The vote on the Manager's amendment was 
adopted as part of the en bloc vote on the amendment and final 
passage of the bill. The en bloc vote was 17-1, with one member 
absent.
    As the name implies, the Small Business Job Creation and 
Access to Capital Act of 2009 is targeted towards increasing 
small business access to capital. In preparing to introduce 
this legislation, the Committee held a series of hearings, 
meetings and roundtables analyzing the SBA's loan programs and 
heard from small businesses and small business lenders on 
increasing the maximum loan sizes on 7(a), 504 and microloans.
    On October 1, 2009, the Committee held a roundtable on the 
``Reauthorization of SBA Finance Programs and the Impact of the 
Small Business Provisions in the Recovery Act.'' The Committee 
addressed issues regarding the Small Business Administration 
(``SBA'') finance programs, the status of SBA provisions in the 
Recovery Act and what steps the Committee should take to ensure 
that small businesses have access to affordable capital. 
Increasing loan limits and enhancing the ability to refinance 
existing qualified debts into 504 loans were a significant 
focus of the discussions.
    On October 6, 2009, the Committee held a hearing titled 
``The Recovery Act for Small Businesses: What is Working and 
What Comes Next?'' The Committee heard testimony on the impact 
that the Recovery Act has had on SBA loan volume and what steps 
could be taken to expand access to capital for small 
businesses.
    This legislation is based on S. 1256, the ``Small Business 
Lending Reauthorization and Improvement Act of 2007,'' which 
was introduced by Senator Kerry on May 1, 2007, and addressed 
increasing 7(a) and 504 loan limits. Additionally, this 
legislation is based on S. 3596, the ``Small Business Lending 
Market Stabilization Act of 2008,'' which was introduced by 
Senator Kerry on September 25, 2008, and addressed lowering of 
SBA fees and refinancing debt through the 504 program. This 
legislation is also based on S. 1615, the ``Next Step for Main 
Street Credit Availability Act of 2009,'' which was introduced 
by Ranking Member Snowe on August 6, 2009, and on S. 3705, the 
``10 Steps for a Main Street Economic Recovery Act,'' which was 
introduced by Ranking Member Snowe in the 110th Congress on 
November 19, 2008. Both bills included increases in 7(a) and 
504 loan limits. S. 1615 contained a provision calling on the 
SBA Administrator to establish an online lending platform 
website that lists each SBA lender and allows borrowers to 
compare rates and apply online for SBA loans.

                        II. DESCRIPTION OF BILL


        TITLE I--NEXT STEPS FOR MAIN STREET CREDIT AVAILABILITY

    This title of the bill increases the maximum amount that 
can be loaned under the SBA's 7(a), 504 and microloan programs; 
extends the 90 percent guarantee on 7(a) loans from February 
17, 2010, until December 31, 2010; extends the authorization 
for the elimination of borrower fees on 7(a) and 504 loans from 
September 30, 2010, until December 31, 2010; updates the amount 
a New Market Venture Capital Company can invest in any 
individual company; requires the SBA to establish an 
alternative size standard for 7(a) and 504 applicants; 
establishes a temporary alternative size standard for 7(a) and 
504 applicants; allows for 7(a) loans to be divided into 
multiple pools for sale on the secondary market; and adopts a 
sense of Congress that the SBA establish an online lending 
platform.
    The specific increases in the maximum loan sizes are as 
follows:
           The maximum size of a 7(a) loan increases 
        from $2 million to $5 million and the maximum guarantee 
        amount increases from $1.5 million to $4.5 million 
        (based on a 90-percent guarantee), and returns to a 
        maximum of $3.75 million (based on a 75 to 85 percent 
        guarantee) after December 31, 2010.
           The maximum size of a 504 loan increases 
        from $1.5 million to $5 million for regular 504 loans; 
        from $2 million to $5 million for 504 loans that meet 
        public policy goals, such as for women-owned 
        businesses; and from $4 million to $5.5 million for 504 
        loans to small manufacturers, for projects that reduce 
        a borrower's energy consumption by at least ten 
        percent, and for projects that generate renewable 
        energy or renewable fuels.
           The maximum size of a microloan to a small 
        business increases from $35,000 to $50,000, and the 
        maximum amount of loan dollars outstanding to a 
        microloan intermediary increases from $3.5 million to 
        $5 million.

               TITLE II--SMALL BUSINESS ACCESS TO CAPITAL

    This title of the bill establishes a temporary program that 
allows Certified Development Companies to refinance existing 
commercial real estate debt through the 504 loan program. Small 
businesses are currently allowed to refinance debt into a 504 
loan if they are expanding. This legislation removes the 
expansion requirement for two years, but adds a new requirement 
that eligible firms retain one employee for every $65,000 lent 
borrowed. Additionally, to be eligible for this program, the 
business must have been current for the past year on the debt 
they are refinancing, and they cannot exceed 80 percent loan to 
value on the new loan. The legislation allows for multiple 
sources for the business owner to meet the equity requirement 
set forth under the legislation. This title also allows small 
businesses to use equity in their real property for working 
capital. To cover expenses for this temporary change to the 504 
program, the SBA is allowed to assess additional fees.

                        TITLE III--OTHER MATTERS

    This title of the bill adds a pilot program to increase 
access to capital for small businesses needing amounts larger 
than microloans but not yet ready for 7(a) loans, and it 
includes a provision that places restrictions on how this bill 
can be funded.
    The Intermediary Lending Pilot Program would authorize a 
new three-year pilot program in which the SBA would make loans 
of $1 million at an interest rate of 1 percent to 20 local 
private, non-profit lending intermediaries to capitalize small 
business revolving funds. Intermediaries would not pay any fees 
or provide any collateral to the SBA for their loans, and 
intermediaries would be granted a two-year grace period on 
principal and interest repayments to the SBA.
    The purpose of the pilot program is to assist small 
business concerns suffering from a lack of credit due to poor 
economic conditions or changes in the financial market. It aims 
to provide flexible loan products to businesses with credit 
needs that exceed the loan limits of the SBA's Microloan 
program and that, for a variety of reasons, including lack of 
sufficient collateral, are unable to secure the credit with 
practicable terms through a conventional lender, even with the 
assistance of a 7(a) loan guarantee. Intermediaries would use 
their SBA loans to capitalize revolving loan funds through 
which loans between $50,000 and $200,000 would be made to small 
businesses in need of flexible debt financing.
    Senator Thune authored a provision prohibiting the use of 
Troubled Asset Relief Program (TARP) authority or tax increases 
establishing a restriction on how this bill can be funded when 
certain conditions are met. The restriction on the use of TARP 
funds prohibits using the ``. . . amounts made available to the 
Secretary of the Treasury under title I of the Emergency 
Economic Stabilization Act of 2008 (12 U.S.C. 5201 et seq.) to 
purchase (under section 101) or guarantee (under section 102) 
assets under that Act.''
    This restriction is written to bind the actions of the 
Secretary of the Treasury by ensuring that TARP authority is 
not used either to offset, purchase, or guarantee assets in 
order to fund this bill.
    The restriction on using funds of a revenue increase only 
applies if that increase was attributed directly to this bill 
during the time of the increase. This increase must be done as 
an amendment to the Internal Revenue Code of 1986 and must be 
done between the date this legislation is enacted and ending on 
December 31, 2010. Even with this restriction, no Congress can 
bind a future Congress. Therefore, if a revenue increase were 
to meet the conditions outlined; it would not be prohibited 
from being used to fund this legislation. Additionally, the 
``last in time'' principle, which states that if there is 
conflicting legislation the latest bill passed would supersede 
anything passed previously, would nullify this section should 
another bill raise revenue that meets the requirements of the 
legislation.
    This section makes it clear that except as provided in 
subsection (b) of Section 302 of the bill, nothing in this Act 
or the amendments made by this Act shall be construed to limit 
the ability of Congress to appropriate funds.

                          III. COMMITTEE VOTE

    In compliance with rule XXVI(7b) of the Standing Rules of 
the Senate, the following votes were recorded on December 17, 
2009.
    A motion by Senator Landrieu to adopt the ``Small Business 
Job Creation and Access to Capital Act of 2009,'' with a 
Manager's Amendment (which added the provisions of title III), 
was approved by an en bloc vote of 17-1, with the following 
Senators voting in the affirmative: Landrieu, Kerry, Levin, 
Harkin, Lieberman, Cantwell, Bayh, Pryor, Cardin, Shaheen, 
Hagan, Snowe, Vitter, Thune, Enzi, Isakson, Risch. The 
following Senator voting in the negative: Bond. The following 
Senator not voting: Wicker.

                           IV. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office.

                                                  January 26, 2010.
Hon. Mary L. Landrieu,
Chair, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Madam Chair: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2869, the Small 
Business Job Creation and Access to Capital Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 2869--Small Business Job Creation and Access to Capital Act of 2009

    Summary: S. 2869 would make changes to several business 
loan and loan guarantee programs operated by the Small Business 
Administration (SBA). The bill also would establish a new pilot 
program, modeled after SBA's microloan program, to make loans 
to intermediaries that would then make loans to new and 
expanding small businesses. Based on information from SBA, CBO 
estimates that implementing S. 2869 would cost $23 million over 
the 2010-2015 period, assuming appropriation of the necessary 
amounts. CBO estimates that enacting S. 2869 would have no 
effect on direct spending or revenues.
    S. 2869 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 2869 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                   By fiscal year, in millions of dollars--
                                                            ----------------------------------------------------
                                                              2010   2011   2012   2013   2014   2015  2010-2015
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level..............................      8      8      8      0      0      0        24
Estimated Outlays..........................................      4      6      7      3      2      1        23
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate CBO assumes that S. 
2869 will be enacted early in 2010, the necessary amounts will 
be appropriated each year, and spending will follow historical 
patterns. Based on information from SBA, CBO estimates that 
implementing S. 2869 would cost $23 million over the 2010-2015 
period, assuming appropriation of the necessary amounts.
    The budgetary accounting for SBA's direct loan and loan 
guarantee programs is governed by the Federal Credit Reform Act 
of 1990, which requires an appropriation of the subsidy and 
administrative costs associated with loan guarantees and loan 
operations. The subsidy cost is the estimated long-term cost to 
the government of a loan or loan guarantee, calculated on a 
net-present-value basis, excluding administrative costs. 
Administrative costs, recorded on a cash basis, include 
activities related to making, servicing, and liquidating loans 
as well as overseeing the performance of lenders.

Small Business Intermediary Lending Program

    The bill would authorize a three-year program to provide 
loans ranging in size from $35,000 to $200,000 to nonprofit 
lenders that would, in turn, make loans to eligible small 
businesses. The program, modeled after the microloan program, 
would feature a 20-year loan term, an interest rate of 1 
percent, and a two-year grace period before principal and 
interest payments would be first due. The bill would authorize 
$20 million in loans for each of fiscal years 2010 through 
2012. Based on information from SBA, CBO estimates that the 
subsidy rate for the program would be about 38 percent; the 
difference between the governments's borrowing rate and the 
rate SBA would charge the borrowers makes up nearly half of the 
subsidy cost. We estimate that the subsidy cost for the 
authorized loan amounts would be $23 million over the 2010-2015 
period.

Business loan programs

    Other provisions of S. 2869 would make changes to several 
of SBA's existing business loan programs. The bill would:
         Increase the maximum size of loans that SBA 
        would be authorized to guarantee under the 7(a) and 504 
        loan programs;
         For a limited time, increase the guarantee 
        percentage on 7(a) loans from up to 85 percent to 90 
        percent of the amount of the loan; and
         Increase the maximum size of loans 
        intermediaries would be authorized to make to small 
        businesses under the microloan program and the maximum 
        amount an intermediary can loan to a single borrower.
    SBA's 7(a) program provides limited guarantees on loans 
made by certain lending institutions to small businesses; the 
504 program (also known as the certified development company 
program) provides guarantees on debentures issued by certified 
development companies to provide funding to small businesses 
for major fixed assets. The microloan program provides direct 
loans to nonprofit lenders which then offer loans to small 
businesses just starting up, whose capital needs are too small 
to qualify for the 7(a) program. Estimated subsidy rates for 
those programs range from zero percent for the 504 program to 
about 12 percent for the microloan program.
    Based on information from SBA, CBO expects that changing 
the loan terms would not significantly affect the programs' 
estimated subsidy rates. Thus, CBO estimates that implementing 
those changes would not significantly affect spending subject 
to appropriation.
    Intergovernmental and private-sector impact:S. 2869 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. The bill would benefit tribal governments by 
establishing a grant program for tribal agencies to provide 
loans to new and growing businesses. Any costs to tribal 
governments of participating in the program would be incurred 
voluntarily.
    Estimate prepared by:Federal costs: Susan Willie;Impact on 
state, local, and tribal governments: Elizabeth Cove 
Delisle;Impact on the private sector: Sam Wice.
    Estimate approved by:Theresa Gullo,Deputy Assistant 
Director for Budget Analysis.

                   V. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                    VI. SECTION-BY-SECTION ANALYSIS


Section 1. Short title

        TITLE I--NEXT STEPS FOR MAIN STREET CREDIT AVAILABILITY

Section 101. Section 7(a) business loans

    This section permanently increases the maximum loan and 
guarantee sizes for 7(a) loans and temporarily extends a higher 
guarantee. Specifically, the 7(a) loan size increases from $2 
million to $5 million, and the maximum guarantee amount 
increases from $1.5 million to $4.5 million, based on a 90 
percent guarantee. The 90 percent guarantee is temporary, 
authorized through December 31, 2010, and then reverts back to 
the permanent levels of 85 percent for loans of $150,000 and 
less, and to 75 percent for loans that are more than $150,000. 
At that time, the maximum guarantee will also revert back to 
$3.75 million from $4.5 million. The higher loan amounts help 
businesses in need of floor plan financing, as well as small 
manufacturers, hotels, restaurants, franchisees, and those 
located in high-cost areas.

Section 102. Maximum loan amounts under 504 Program

    This section increases from $1.5 to $5 million, the loan 
limit for regular 504 loans; from $2 million to $5 million for 
loans that meet public policy goals, such as for women-owned 
businesses; and from $4 million to $5.5 million for loans to 
small manufacturers, for projects that reduce a borrower's 
energy consumption by at least ten percent, and for projects 
that generate renewable energy or renewable fuels.

Section 103. Maximum loan limits under Microloan Program

    This section increases the maximum loan a microloan 
intermediary can make to a small business from $35,000 to 
$50,000 and increases the maximum loan a microloan intermediary 
can receive from $3.5 million to $5 million.

Section 104. Temporary fee reductions

    This section extends the waivers for the 7(a) borrower fees 
and the 504 borrower and bank fees enacted as part of the 
American Recovery and Reinvestment Act (ARRA or the Recovery 
Act) from September 30, 2010, to December 31, 2010. This is 
solely an authorization and will need separate appropriations 
to be implemented.

Section 105. New Markets Venture Capital company investment limitations

    This section fixes an omission in the Recovery Act so that 
New Markets Venture Capital (NMVC) firms have equal treatment 
to Small Business Investment Companies (SBICs), as Congress 
intended. Specifically, it updates the limit on the size of the 
investment a NMVC fund can invest in any one company, making 
the program more attractive to investors and small businesses, 
and bringing them in-line with private-sector practices.

Section 106. Alternative size standards

    This section requires the SBA to establish an optional size 
standard which is applicable to both 7(a) borrowers and 504 
borrowers. Specifically, the new standard utilizes a maximum 
tangible net worth and an average net income as an alternative 
to industry standards, which are considered confusing and 
burdensome. In addition, until an alternative size standard is 
established as required by this section, this bill directs the 
Administration to issue an interim final rule making borrowers 
for 7(a) and 504 loans eligible for such loans if their maximum 
tangible net worth is $15 million or less and their average net 
income after Federal income taxes for the two full fiscal years 
before the date of application does not exceed $5 million.

Section 107. Sale of 7(a) loans in secondary market

    This section allows the Administration to approve a request 
from a pool assembler of SBA loan guarantees to divide loan 
guarantees into increments of $500,000 for SBA loans that have 
a guarantee portion of more than $500,000. The purpose of this 
section is to maintain the marketability of 7(a) loans in the 
secondary market as the loan limits increase.

Section 108. Online lending platform

    This section adopts a sense of the Congress that the 
Administrator should establish a website that lists each lender 
that makes SBA guaranteed loans as well as the lender's rates 
so that businesses, or potential business owners, can identify 
SBA lenders in their area and compare rates.

               TITLE II--SMALL BUSINESS ACCESS TO CAPITAL

Section 202. Low interest refinancing under the local development 
        business loan program

    This section temporarily (two years) amends the Small 
Business Investment Act so that businesses can use 504 loan 
guarantees to refinance existing business debt, if it is 
current, even if the business is not expanding. A business is 
eligible for this refinancing if they create or retain one job 
per $65,000 borrowed. The business will be able to finance 
$65,000 per job retained, or up to $5.5 million, based on the 
job creation requirements. This provision complements a 504 
refinance provision adopted as part of the Recovery Act, 
enhancing a small business's options to maintain a healthy cash 
flow until the economy improves.

                        TITLE III--OTHER MATTERS

Section 301. Small business Intermediary Lending Pilot Program

    This section authorizes a pilot program for intermediaries 
making loans between $50,000 and $200,000.
    The Intermediary Lending Pilot Program would authorize a 
new three-year pilot program in which the SBA would make loans 
of $1 million at an interest rate of 1 percent to 20 local 
private non-profit lending intermediaries to capitalize small 
business revolving funds. Intermediaries would not pay any fees 
or provide any collateral to the SBA for their loans and 
intermediaries would be granted a two-year grace period on 
principal and interest repayments to the SBA.
    The purpose of the pilot program is to assist small 
business concerns suffering from a lack of credit due to poor 
economic conditions or changes in the financial market. It aims 
to provide flexible loan products to businesses with credit 
needs that exceed the loan limits of the SBA's Microloan 
program and that, for a variety of reasons, including lack of 
sufficient collateral, are unable to secure the credit with 
practicable terms through a conventional lender, even with the 
assistance of a 7(a) guarantee. Intermediaries would use their 
SBA loans to capitalize revolving loan funds through which 
loans of up to $200,000 would be made to small businesses in 
need of flexible debt financing.

Section 302. Prohibition on using TARP funds or tax increases

    This section outlines the prohibition on using certain 
funds to finance this bill. Specifically, it prohibits the use 
of Troubled Asset Relief Program (TARP) funds ``amounts made 
available to the Secretary of the Treasury under title I of the 
Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5201 et 
seq.) to purchase (under section 101) or guarantee (under 
section 102) assets under that Act.'' Additionally, the bill 
restricts and the use of funds from any revenue increase 
attributable to any amendment to the Internal Revenue Code of 
1986 made during the period beginning on the date of enactment 
of this Act and ending on December 31, 2010.
    This section makes it clear that except as provided in 
subsection (b) of Section 302 of the bill, nothing in this Act 
or the amendments made by this Act shall be construed to limit 
the ability of Congress to appropriate funds.

                                  
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