[Senate Report 115-437]
[From the U.S. Government Publishing Office]


                                                     Calendar No. 632
115th Congress       }                      {                 Report
                                 SENATE
 2d Session          }                      {                 115-437

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              7(A) REAL ESTATE APPRAISAL HARMONIZATION ACT

                                _______
                                

               December 19, 2018.--Ordered to be printed

                                _______
                                

 Mr. Risch, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 3552]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 3552) to amend the Small 
Business Act of 1953 to align the real estate appraisal 
threshold under the section 7(a) program of the Small Business 
Administration with the threshold used by the Federal banking 
regulators, and for other purposes, having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                            I. INTRODUCTION

    The 7(a) Real Estate Appraisal Harmonization Act was 
introduced by Chairman James E. Risch on October 5, 2018.
    The bill amends the Small Business Act of 1953 to align the 
appraisal threshold amount for the Small Business 
Administration's 7(a) Loan Guaranty program to the Federal 
banking regulators' threshold amount for commercial real estate 
transactions, or the lesser amount of the three Federal banking 
regulators' (Federal Reserve System, Federal Deposit Insurance 
Corporation and Comptroller of the Currency) threshold for 
commercial real estate transactions, if there is a discrepancy.
    The bill was approved unanimously by a roll call vote as 
part of a six-bill manager's package.

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    The Small Business Administration (SBA) administers a 
number of loan programs to provide access to capital to 
entrepreneurs and small businesses who are unable to obtain 
financing ``on reasonable terms and conditions.''\1\ One of 
these programs, the 7(a) Loan Guaranty program, is the SBA's 
flagship loan program and is named for Section 7(a) of the 
Small Business Act of 1953, which authorizes the SBA to 
guarantee business loans to entrepreneurs and small businesses.
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    \1\Dilger, Robert Jay. Updated November 7, 2018. Small Business 
Administration 7(a) Loan Guaranty Program. Retrieved from: http://
www.crs.gov/Reports/R41146.
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    7(a) loans may be used to establish a new business or to 
assist in the operation, acquisition, or expansion of an 
existing business. Permissible uses include acquiring land; 
improving a site; purchasing, expanding, or renovating existing 
buildings; constructing new buildings; acquiring and installing 
fixed assets; purchasing inventory, supplies, and raw 
materials; financing working capital; and refinancing certain 
outstanding debts. In FY 2018, the SBA approved 60,353 7(a) 
loans totaling nearly $25.4 billion with an average approved 
7(a) loan amount of $420,401.\2\
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    \2\Id.
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    Because borrowers are allowed to use the loan for a variety 
of uses related to purchasing, expanding, or renovating 
existing buildings and land, 7(a) loans provide a critical 
avenue for small businesses seeking real estate. Since 2000, 
the SBA loan programs have required appraisals for commercial 
real estate transactions consistent with the appraisal 
threshold level set by the Federal banking regulators for 
conventional commercial real estate loans in 1994.\3\ While the 
threshold level for conventional commercial real estate loans 
is set by regulation, the threshold level for 7(a) commercial 
real estate loans is set by statute under the Small Business 
Act of 1953.
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    \3\OCC: 12 CFR 34.42(d); Federal Reserve: 12 CFR 225.62(d); and 
FDIC: 12 CFR 323.2(d).
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    On April 9, 2018, and after a year of dialogue with 
industry stakeholders, the Board of Governors of the Federal 
Reserve (Federal Reserve), the Federal Deposit Insurance 
Corporation (FDIC), and the Office of the Comptroller of the 
Currency (OCC) together issued a final rule increasing the 
appraisal threshold for commercial real estate loans from 
$250,000 to $500,000.\4\ Part of the impetus for this change 
stems from the increase in commercial property values since the 
threshold was established in 1994; due to these increased 
values, financial institutions were required to get formal 
appraisals on a larger proportion of transactions than when the 
standard was originally set. Additionally, through the 
rulemaking process, regulators determined that the increase in 
the number of appraisals required may contribute to a higher 
burden and cost to financial institutions. Regulators concluded 
that increasing this threshold would reduce the burden for both 
rural and non-rural institutions while posing no threat to the 
safety and soundness of financial institutions.
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    \4\83 FR 15019.
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    Because the threshold for SBA's 7(a) Loan Guaranty program 
is set at $250,000 in statute, legislation is required to 
harmonize and modernize SBA's loan program requirements with 
the threshold set by Federal banking regulators.

                        III. DESCRIPTION OF BILL

    The bill amends the Small Business Act of 1953 to align the 
appraisal threshold amount for the Small Business 
Administration's 7(a) Loan Guaranty program to the Federal 
banking regulators' threshold amount for commercial real estate 
transactions, or the lesser amount of the three Federal banking 
regulators' (Federal Reserve System, Federal Deposit Insurance 
Corporation and Comptroller of the Currency) threshold for 
commercial real estate transactions, if there is a discrepancy.

                           IV. COMMITTEE VOTE

    In compliance with rule XXVI (7)(b) of the Standing Rules 
of the Senate, the following vote was recorded on October 11, 
2018.
    A motion to adopt the 7(a) Real Estate Appraisal 
Harmonization Act, a bill to amend the Small Business Act to 
align real estate appraisal threshold for the 7(a) program of 
the Small Business Administration to bring those thresholds 
into line with the threshold used by the Federal banking 
regulators, and for other purposes, was approved unanimously, 
by a roll call vote of 19-0, as part of a six-bill manager's 
package.\5\ Senators Risch, Cardin, Rubio, Paul, Scott, Ernst, 
Inhofe, Young, Enzi, Rounds, Kennedy, Cantwell, Shaheen, 
Heitkamp, Markey, Booker, Coons, Hirono, and Duckworth voted 
for the bill.
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    \5\The manager's package included: the substitute amendment for S. 
2679, the Veterans Small Business Enhancement Act; S. 3552, the 7(a) 
Real Estate Appraisal Harmonization Act; S. 3553, the Small Business 
Access to Capital and Efficiency Act; S. 3554, a bill to extend the 
effective date for the sunset for collateral requirements for Small 
Business Administration disaster loans; S. 3561, the National Guard and 
Reserve Entrepreneurship Support Act; and S. 3562, the Small Business 
Runway Extension Act of 2018.
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                            V. 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:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 15, 2018.
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 3552, the 7(a) Real 
Estate Harmonization Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

    Under current law, small businesses that receive loans 
under the Small Business Administration's (SBA's) 7(a) Loan 
Guaranty program are required to receive an appraisal on any 
commercial real property used as collateral in securing those 
loans if the estimated value of the property is $250,000 or 
greater. S. 3552 would raise that threshold to the lowest of 
the thresholds used by the Board of Governors of the Federal 
Reserve System, the Comptroller of the Currency, and the 
Federal Deposit Insurance Corporation to determine when a 
commercial real estate transaction requires an appraisal. The 
threshold for all three agencies is currently $500,000.
    Using information from the SBA on the costs of similar 
activities, CBO estimates that implementing the bill would cost 
less than $500,000 for the agency to update its program rules; 
such spending would be subject to the availability of 
appropriated funds. CBO also estimates that any change in the 
subsidy cost of SBA loans, which are subject to appropriation, 
would be insignificant.
    Enacting S. 3552 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting S. 3552 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    S. 3552 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    On August 13, 2018, CBO transmitted a cost estimate for 
H.R. 6347, the 7(a) Real Estate Appraisal Harmonization Act, as 
ordered reported by the House Committee on Small Business on 
July 18, 2018. The two pieces of legislation are similar and 
CBO's estimates of their budgetary effects is the same.

                  VI. 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.

                    VII. SECTION-BY-SECTION ANALYSIS

Section 1: Short title

    This section provides the short title for the Act, the 
``7(a) Real Estate Appraisal Harmonization Act.''

Section 2: Appraisal thresholds

    This section amends section 7(a)(29) of the Small Business 
Act, 15 U.S.C. 636(a)(29), by adjusting the commercial real 
estate appraisal threshold for the 7(a) Loan Guaranty program 
to align with the threshold set by Federal banking regulators. 
This section does not specify a dollar amount for the 7(a) 
commercial real estate loan appraisal threshold, but rather 
modernizes the statute to match the threshold to the lowest 
level set by the Federal banking regulators, should they 
differ. Currently, the regulators have together set this level 
at $500,000 as of April 9, 2018. This language is important to 
ensure that lenders who provide SBA products along with their 
conventional products--most of whom are federally regulated--do 
not have an added layer of complexity managing two different 
appraisal thresholds, while guaranteeing small business 
borrowers who cannot obtain credit elsewhere are not required 
to get an appraisal on loans that conventional borrowers do not 
have to obtain. This language also provides long-term clarity 
and certainty to lenders and borrowers by unifying the 7(a) 
program's appraisal threshold with the Federal banking 
regulators threshold moving forward.

                                  [all]